-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MFLzObj12Wv90ITRaFVlENVhx9qTBDrGfl5YBaCkB2LqjJMqZXEHoRnYk5BUCPPb Nnld0t0+BvaldsVZ0wxhlA== 0001022804-10-000008.txt : 20100303 0001022804-10-000008.hdr.sgml : 20100303 20100303084929 ACCESSION NUMBER: 0001022804-10-000008 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20091231 FILED AS OF DATE: 20100303 DATE AS OF CHANGE: 20100303 EFFECTIVENESS DATE: 20100303 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FRANKLIN TEMPLETON FUND ALLOCATOR SERIES CENTRAL INDEX KEY: 0001022804 IRS NUMBER: 000000000 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-07851 FILM NUMBER: 10651623 BUSINESS ADDRESS: STREET 1: ONE FRANKLIN PARKWAY CITY: SAN MATEO STATE: CA ZIP: 94403-1906 BUSINESS PHONE: 650-312-4018 MAIL ADDRESS: STREET 1: FRANKLIN TEMPLETON FUND ALLOCATOR SERIES STREET 2: ONE FRANKLIN PARKWAY CITY: SAN MATEO STATE: CA ZIP: 94403-1906 0001022804 S000007239 FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND C000019839 CLASS B C000019840 ADVISOR CLASS C000019841 CLASS A FTCIX C000019842 CLASS C FTCCX C000019843 CLASS R FTCRX 0001022804 S000007240 FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND C000019844 CLASS A C000019845 CLASS B C000019846 CLASS C FTCOX C000019847 CLASS R FBCOX C000019848 ADVISOR CLASS FTCLX 0001022804 S000007241 FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND C000019849 CLASS A C000019850 CLASS B C000019851 CLASS C FFALX C000019852 CLASS R FFABX C000019853 ADVISOR CLASS FFACX 0001022804 S000007242 FRANKLIN TEMPLETON GROWTH TARGET FUND C000019854 CLASS B C000019855 ADVISOR CLASS C000019856 CLASS A FGTIX C000019857 CLASS C FTGTX C000019858 CLASS R FGTRX 0001022804 S000007243 FRANKLIN TEMPLETON MODERATE TARGET FUND C000019859 CLASS B C000019860 ADVISOR CLASS C000019861 CLASS A FMTIX C000019862 CLASS C FTMTX C000019863 CLASS R FTMRX 0001022804 S000007244 FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION FUND C000019864 CLASS R C000019865 ADVISOR CLASS C000019866 CLASS A FPAAX C000019867 CLASS C FPCAX 0001022804 S000012937 Franklin Templeton 2015 Retirement Target Fund C000034925 A C000034926 C C000034927 R C000034928 ADVISOR 0001022804 S000012938 Franklin Templeton 2025 Retirement Target Fund C000034929 A C000034930 C C000034931 R C000034932 ADVISOR 0001022804 S000012939 Franklin Templeton 2035 Retirement Target Fund C000034933 C C000034934 R C000034935 ADVISOR C000034936 A 0001022804 S000012940 Franklin Templeton 2045 Retirement Target Fund C000034937 A C000034938 C C000034939 R C000034940 ADVISOR N-CSR 1 ftfasarpt0310.txt FTFAS ANNUAL REPORTS DTD 12/31/09 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-07851 --------- FRANKLIN TEMPLETON FUND ALLOCATOR SERIES -------------------------------------------------- (Exact name of registrant as specified in charter) ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906 --------------------------------------------------- (Address of principal executive offices) (Zip code) CRAIG S. TYLE, ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906 ------------------------------------------------------------- (Name and address of agent for service) Registrant's telephone number, including area code: (650) 312-2000 -------------- Date of fiscal year end: 12/31 ----- Date of reporting period: 12/31/09 -------- ITEM 1. REPORTS TO STOCKHOLDERS. DECEMBER 31, 2009 ANNUAL REPORT AND SHAREHOLDER LETTER Franklin Templeton Conservative Target Fund Franklin Templeton Moderate Target Fund Franklin Templeton Growth Target Fund SIGN UP FOR ELECTRONIC DELIVERY on franklintempleton.com (GRAPHIC) ASSET ALLOCATION FRANKLIN TEMPLETON FUND ALLOCATOR SERIES (FRANKLIN TEMPLETON INVESTMENTS(R) LOGO) FRANKLIN - TEMPLETON - MUTUAL SERIES Franklin Templeton Investments GAIN FROM OUR PERSPECTIVE(R) Franklin Templeton's distinct multi-manager structure combines the specialized expertise of three world-class investment management groups--Franklin, Templeton and Mutual Series. SPECIALIZED EXPERTISE Each of our portfolio management groups operates autonomously, relying on its own research and staying true to the unique investment disciplines that underlie its success. FRANKLIN. Founded in 1947, Franklin is a recognized leader in fixed income investing and also brings expertise in growth- and value-style U.S. equity investing. TEMPLETON. Founded in 1940, Templeton pioneered international investing and, in 1954, launched what has become the industry's oldest global fund. Today, with offices in over 25 countries, Templeton offers investors a truly global perspective. MUTUAL SERIES. Founded in 1949, Mutual Series is dedicated to a unique style of value investing, searching aggressively for opportunity among what it believes are undervalued stocks, as well as arbitrage situations and distressed securities. TRUE DIVERSIFICATION Because our management groups work independently and adhere to different investment approaches, Franklin, Templeton and Mutual Series funds typically have distinct portfolios. That's why our funds can be used to build truly diversified allocation plans covering every major asset class. RELIABILITY YOU CAN TRUST At Franklin Templeton Investments, we seek to consistently provide investors with exceptional risk-adjusted returns over the long term, as well as the reliable, accurate and personal service that has helped us become one of the most trusted names in financial services.
MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS (GRAPHIC) Not part of the annual report Contents SHAREHOLDER LETTER ........................................................ 1 ANNUAL REPORT Economic and Market Overview .............................................. 3 Franklin Templeton Conservative Target Fund ............................... 5 Franklin Templeton Moderate Target Fund ................................... 15 Franklin Templeton Growth Target Fund ..................................... 25 Financial Highlights and Statements of Investments ........................ 35 Financial Statements ...................................................... 53 Notes to Financial Statements ............................................. 58 Report of Independent Registered Public Accounting Firm ................... 69 Tax Designation ........................................................... 70 Board Members and Officers ................................................ 71 Shareholder Information ................................................... 76
Shareholder Letter Dear Shareholder: During the year 2009, U.S. economic activity showed signs of stabilization after a prolonged recession. Government stimulus measures helped thaw credit markets, the financial system avoided collapse, and many companies reported better-than-expected earnings after cutting costs. Investors breathed a collective sigh of relief, and equity markets enjoyed a remarkable rally while interest rates remained low and inflation was subdued. Franklin Templeton Fund Allocator Series' annual report goes into greater detail about prevailing conditions during the period under review. In addition, you will find performance data, financial information and discussions from the portfolio manager. Please remember that all securities markets fluctuate, as do mutual fund share prices. If you would like more frequent updates, franklintempleton.com provides daily prices, monthly performance figures, portfolio holdings and other information. You can also access your account, buy and sell shares, and find helpful financial planning tools. We hope you will take advantage of these online services. Although market conditions are constantly changing, we remain committed to our disciplined strategy as we manage the Fund, keeping in mind the trust you have placed in us. As always, we recommend investors consult their financial advisors and review their portfolios to design a long-term strategy and portfolio allocation that meet their individual needs, goals and risk tolerance. We firmly believe that most people benefit from professional advice, and that advice is invaluable as investors navigate current market conditions. NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE Not part of the annual report | 1 We thank you for investing with Franklin Templeton, welcome your questions and comments, and look forward to serving your investment needs in the years ahead. Sincerely, /s/ Charles B. Johnson - ------------------------------------- Charles B. Johnson Chairman Franklin Templeton Fund Allocator Series THIS LETTER REFLECTS OUR ANALYSIS AND OPINIONS AS OF DECEMBER 31, 2009. THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY, INDUSTRY, SECURITY OR FUND. STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED RELIABLE. 2 | Not part of the annual report Annual Report Economic and Market Overview The U.S. economy ended 2009 in much better shape than it began. After several quarters of contraction, economic activity expanded in the third and fourth quarters. In the year's second half, corporate profit growth was higher than earlier estimates, which may allow businesses to build inventory following a long period of inventory drawdowns. Economic challenges remain, such as stalled consumer confidence and job prospects for the unemployed, as stimulus measures wind down, but several reports pointed to improving economic conditions. Throughout the year, the Federal Open Market Committee kept U.S. monetary policy unchanged, announcing it intends to hold the federal funds target rate in the 0% to 0.25% range "for an extended period" as it lays the groundwork for an eventual tightening of monetary policy. Late in the period, the labor market improved somewhat as the economy lost fewer jobs than expected and the unemployment rate fell slightly, dropping from a period high of 10.2% in October to 10.0% at period-end.(1) Globally, equity markets entered 2009 largely pricing in a possible economic depression and systemic solvency crisis, scenarios that were ultimately averted by one of the most aggressive global policy responses in financial history. As government monetary and fiscal intervention began to gain traction toward the end of the first quarter, equities bottomed and largely reversed their decline, economic growth stabilized and rebounded, and confidence was rekindled as investors began to believe the global financial system was finally on the mend. Emerging market economies fueled the global recovery as governments aggressively incentivized lending and consumption, resulting in a dramatic recovery that laid the groundwork for the developing world's equity rally. Growing demand from emerging markets supported commodity prices, which also posted record gains during the year. For most of the year, the fading U.S. dollar also helped underpin the rally in hard assets, while continued euro and yen strength created headwinds for regional recoveries. For the 12 months under review, the blue chip stocks of the Dow Jones Industrial Average delivered a total return of +22.68%, while the broader Standard & Poor's 500 Index (S&P 500) posted a +26.46% total return and (1.) Source: Bureau of Labor Statistics. Annual Report | 3 the technology-heavy NASDAQ Composite Index returned +45.32%.(2) Global developed and emerging markets, as measured by the Morgan Stanley Capital International (MSCI) All Country World Index, delivered a +35.41% total return.(3) THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS AND OPINIONS AS OF DECEMBER 31, 2009. THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY, INDUSTRY, SECURITY OR FUND. STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED RELIABLE. (2.) Source: (C) 2009 Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results. The Dow Jones Industrial Average is price weighted based on the average market price of 30 blue chip stocks of companies that are generally industry leaders. The S&P 500 consists of 500 stocks chosen for market size, liquidity and industry group representation. Each stock's weight in the index is proportionate to its market value. The S&P 500 is one of the most widely used benchmarks of U.S. equity performance. The NASDAQ Composite Index measures all NASDAQ domestic and international common type stocks listed on The NASDAQ Stock Market. (3.) Source: (C) 2009 Morningstar. The MSCI All Country World Index is a free float-adjusted, market capitalization-weighted index designed to measure equity market performance in global developed and emerging markets. 4 | Annual Report Franklin Templeton Conservative Target Fund YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Templeton Conservative Target Fund seeks the highest level of long-term total return consistent with a lower level of risk.(1) ASSET ALLOCATION* Franklin Templeton Conservative Target Fund Based on Total Net Assets as of 12/31/09 (PIE CHART) Domestic Equity............................ 30.0% Domestic Fixed Income...................... 22.9% Foreign Fixed Income....................... 14.3% Foreign Equity............................. 13.1% Short-Term Investments & Other Net Assets.. 19.7%
* The asset allocation is based on the Statement of Investments (SOI), which classifies each underlying fund into a broad asset class. PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM FIGURES SHOWN. PLEASE VISIT franklintempleton.com OR CALL (800) 342-5236 FOR MOST RECENT MONTH-END PERFORMANCE. This annual report for Franklin Templeton Conservative Target Fund covers the fiscal year ended December 31, 2009. PERFORMANCE OVERVIEW Franklin Templeton Conservative Target Fund - Class A delivered a +19.67% cumulative total return for the 12 months under review. By comparison the Fund's benchmarks, the Standard & Poor's 500 Index (S&P 500) and Morgan Stanley Capital International (MSCI) Europe, Australasia, Far East (EAFE) Index for equities, the Barclays Capital (BC) U.S. Aggregate Index for fixed income, and the Payden & Rygel (P&R) 90 Day U.S. T-Bill Index for short-term investments and other net assets, posted total returns of +26.46%, (1.) The risk/reward potential is based on the Fund's goal and level of risk. It is not indicative of the Fund's actual or implied performance or portfolio composition, which may change on a continuous basis. THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S SOI, WHICH BEGINS ON PAGE 40. Annual Report | 5 TOP 10 FUND HOLDINGS Franklin Templeton Conservative Target Fund 12/31/09
% OF TOTAL NET ASSETS ---------- Franklin U.S. Government Securities Fund - Advisor Class 12.8% Templeton Global Bond Fund - Advisor Class 12.7% Franklin Flex Cap Growth Fund - Advisor Class 10.9% Franklin Total Return Fund - Advisor Class 10.1% Mutual Shares Fund - Class Z 7.3% Mutual European Fund - Class Z 4.5% Franklin Growth Opportunities Fund - Advisor Class 4.5% Templeton Foreign Fund - Advisor Class 4.3% Templeton China World Fund - Advisor Class 2.2% Franklin Gold and Precious Metals Fund - Advisor Class 2.1%
+32.46%, +5.93% and +0.17%, respectively, during the same time.(2) You can find the Fund's long-term performance data in the Performance Summary beginning on page 8. INVESTMENT STRATEGY Whenever possible, we attempt to hold the same underlying Franklin Templeton funds in each Target Fund's portfolio and will vary the underlying funds' allocation percentages based upon each Target Fund's risk/return level. Maintaining similarity of the underlying Franklin Templeton fund investments across the Conservative, Moderate and Growth Target Funds is intended to increase the consistency of their results relative to one another. We allocate the Fund's assets among the broad asset classes, and when selecting equity funds, we consider the underlying funds' foreign and domestic exposure, market capitalization ranges and investment styles (growth versus value). When selecting fixed income funds, we focus primarily on maximizing income appropriate to the Fund's risk profile. MANAGER'S DISCUSSION The Fund's performance can be attributed to its allocation among equities, fixed income securities, and short-term investments and other net assets, and to the actual performance of the selected underlying funds. At period-end, Franklin Templeton Conservative Target Fund's domestic equity exposure was 69.6% of its total equity weighting, with the balance represented by foreign equity. The portfolio was diversified across capitalization sizes and (2.) Source: (C) 2009 Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. The S&P 500 consists of 500 stocks chosen for market size, liquidity and industry group representation. Each stock's weight in the index is proportionate to its market value. The S&P 500 is one of the most widely used benchmarks of U.S. equity performance. The MSCI EAFE Index is a free float-adjusted, market capitalization-weighted index designed to measure equity market performance in global developed markets excluding the U.S. and Canada. The BC U.S. Aggregate Index is a market capitalization-weighted index representing the U.S. investment-grade, fixed-rate, taxable bond market with index components for government and corporate, mortgage pass-through and asset-backed securities. All issues included are SEC registered, taxable, dollar denominated and nonconvertible, must have at least one year to final maturity and must be rated investment grade (Baa3/BBB-/BBB- or higher) by Moody's, Standard & Poor's or Fitch, respectively. The P&R 90 Day U.S. T-Bill Index is a total return index based on a constant maturity instrument. Payden & Rygel includes both accrued interest and change in market price in its monthly total return calculations. The value of Treasuries, if held to maturity, is fixed; principal is guaranteed and interest is fixed. The indexes are unmanaged and include reinvested distributions. One cannot invest directly in an index, and an index is not representative of the Fund's portfolio. 6 | Annual Report investment styles, and on December 31, 2009, we held shares in large-, mid- and small-capitalization equity funds, representing both growth and value styles. Franklin Flex Cap Growth Fund - Advisor Class, representing 10.9% of the Fund's total net assets, was our largest equity fund weighting at period-end. On the fixed income side, domestic exposure was 61.6% of the Fund's total income weighting, with the balance represented by foreign fixed income. Franklin U.S. Government Securities Fund - Advisor Class was our largest fixed income fund weighting at 12.8% of total net assets. Our largest domestic growth fund holding, Franklin Flex Cap Growth Fund - Advisor Class, and our largest domestic value fund holding, Mutual Shares Fund - Class Z, outperformed the S&P 500 during the 12-month reporting period. Our largest foreign equity fund holding, Mutual European Fund - Class Z, under-performed the MSCI EAFE Index; however, Templeton Foreign Fund - Advisor Class outperformed. On the fixed income side, Franklin U.S. Government Securities Fund - Advisor class underperformed the BC U.S. Aggregate Index, while Templeton Global Bond Fund - Advisor Class outperformed. Thank you for your continued participation in Franklin Templeton Conservative Target Fund. We look forward to serving your future investment needs. (PHOTO OF T. ANTHONY COFFEY) /s/ T. Anthony Coffey T. Anthony Coffey, CFA Portfolio Manager Franklin Templeton Conservative Target Fund THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2009, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT OUR MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY. THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY, INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED RELIABLE, BUT THE INVESTMENT MANAGER MAKES NO REPRESENTATION OR WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR INVESTMENT MANAGEMENT PHILOSOPHY. Annual Report | 7 Performance Summary as of 12/31/09 FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND Your dividend income will vary depending on dividends or interest paid by securities in the Fund's portfolio, adjusted for operating expenses of each class. Capital gain distributions are net profits realized from the sale of portfolio securities. The performance table and graphs do not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares. Total return reflects reinvestment of the Fund's dividends and capital gain distributions, if any, and any unrealized gains or losses. PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: FTCIX) CHANGE 12/31/09 12/31/08 - ----------------------- ------ -------- -------- Net Asset Value (NAV) +$1.80 $12.72 $10.92 DISTRIBUTIONS (1/1/09-12/31/09) Dividend Income $0.2405 Long-Term Capital Gain $0.0800 TOTAL $0.3205
CLASS B (SYMBOL: N/A) CHANGE 12/31/09 12/31/08 - --------------------- ------ -------- -------- Net Asset Value (NAV) +$1.80 $12.68 $10.88 DISTRIBUTIONS (1/1/09-12/31/09) Dividend Income $0.1526 Long-Term Capital Gain $0.0800 TOTAL $0.2326
CLASS C (SYMBOL: FTCCX) CHANGE 12/31/09 12/31/08 - ----------------------- ------ -------- -------- Net Asset Value (NAV) +$1.77 $12.54 $10.77 DISTRIBUTIONS (1/1/09-12/31/09) Dividend Income $0.1595 Long-Term Capital Gain $0.0800 TOTAL $0.2395
CLASS R (SYMBOL: FTCRX) CHANGE 12/31/09 12/31/08 - ----------------------- ------ -------- -------- Net Asset Value (NAV) +$1.80 $12.69 $10.89 DISTRIBUTIONS (1/1/09-12/31/09) Dividend Income $0.2140 Long-Term Capital Gain $0.0800 TOTAL $0.2940
ADVISOR CLASS (SYMBOL: FTCZX) CHANGE 12/31/09 12/31/08 - ----------------------------- ------ -------- -------- Net Asset Value (NAV) +$1.80 $12.71 $10.91 DISTRIBUTIONS (1/1/09-12/31/09) Dividend Income $0.2686 Long-Term Capital Gain $0.0800 TOTAL $0.3486
8 | Annual Report Performance Summary (CONTINUED) PERFORMANCE(1) CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURN AND VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 5.75% MAXIMUM INITIAL SALES CHARGE; CLASS B: CONTINGENT DEFERRED SALES CHARGE (CDSC) DECLINING FROM 4% TO 1% OVER SIX YEARS, AND ELIMINATED THEREAFTER; CLASS C: 1% CDSC IN FIRST YEAR ONLY; CLASS R/ADVISOR CLASS: NO SALES CHARGES.
CLASS A 1-YEAR 5-YEAR 10-YEAR - ------- ------- ------- ---------- Cumulative Total Return(2) +19.67% +26.15% +57.03% Average Annual Total Return(3) +12.75% +3.52% +3.99% Value of $10,000 Investment(4) $11,275 $11,891 $14,795 Total Annual Operating Expenses(5) Without Waiver 1.37% With Waiver 1.17%
INCEPTION CLASS B 1-YEAR 5-YEAR (12/1/03) - ------- ------- ------- ---------- Cumulative Total Return(2) +18.85% +21.43% +32.46% Average Annual Total Return(3) +14.85% +3.62% +4.73% Value of $10,000 Investment(4) $11,485 $11,943 $13,246 Total Annual Operating Expenses(5) Without Waiver 2.12% With Waiver 1.92%
CLASS C 1-YEAR 5-YEAR 10-YEAR - ------- ------- ------- ---------- Cumulative Total Return(2) +18.84% +21.53% +45.77% Average Annual Total Return(3) +17.84% +3.98% +3.84% Value of $10,000 Investment(4) $11,784 $12,153 $14,577 Total Annual Operating Expenses(5) Without Waiver 2.12% With Waiver 1.92%
INCEPTION CLASS R 1-YEAR 5-YEAR (1/1/02) - ------- ------- ------- ---------- Cumulative Total Return(2) +19.45% +24.62% +50.76% Average Annual Total Return(3) +19.45% +4.50% +5.27% Value of $10,000 Investment(4) $11,945 $12,462 $15,076 Total Annual Operating Expenses(5) Without Waiver 1.62% With Waiver 1.42%
ADVISOR CLASS(6) 1-YEAR 5-YEAR 10-YEAR - ---------------- ------- ------- ---------- Cumulative Total Return(2) +19.97% +27.39% +58.59% Average Annual Total Return(3) +19.97% +4.96% +4.72% Value of $10,000 Investment(4) $11,997 $12,739 $15,859 Total Annual Operating Expenses(5) Without Waiver 1.12% With Waiver 0.92%
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM FIGURES SHOWN. FOR MOST RECENT MONTH-END PERFORMANCE, GO TO franklintempleton.com OR CALL (800) 342-5236. THE INVESTMENT MANAGER HAS CONTRACTUALLY AGREED TO WAIVE OR LIMIT ITS FEES AND TO ASSUME AS ITS OWN EXPENSE CERTAIN EXPENSES OTHERWISE PAYABLE BY THE FUND SO THAT COMMON EXPENSES (I.E., A COMBINATION OF ASSET ALLOCATION FEES AND OTHER EXPENSES, BUT EXCLUDING RULE 12B-1 FEES AND ACQUIRED FUND FEES AND EXPENSES) FOR EACH CLASS OF THE FUND DO NOT EXCEED 0.25% (OTHER THAN CERTAIN NONROUTINE EXPENSES OR COSTS, INCLUDING THOSE RELATING TO LITIGATION, INDEMNIFICATION, REORGANIZATIONS AND LIQUIDATIONS) UNTIL 4/30/10. Annual Report | 9 Performance Summary (CONTINUED) TOTAL RETURN INDEX COMPARISON FOR A HYPOTHETICAL $10,000 INVESTMENT(1) Total return represents the change in value of an investment over the periods shown. It includes any current, applicable, maximum sales charge, Fund expenses, account fees and reinvested distributions. The unmanaged indexes include reinvestment of any income or distributions. They differ from the Fund in composition and do not pay management fees or expenses. One cannot invest directly in an index. AVERAGE ANNUAL TOTAL RETURN
CLASS A 12/31/09 - ------- -------- 1-Year +12.75% 5-Year +3.52% 10-Year +3.99%
CLASS A (1/1/00-12/31/09) (PERFORMANCE GRAPH)
FRANKLIN TEMPLETON MSCI BARCLAYS CAPITAL P&R 90-DAY CONSERVATIVE TARGET S&P 500 EAFE U.S. AGGREGATE U.S. TREASURY DATE FUND - CLASS A INDEX INDEX INDEX BILL INDEX - ---------- ------------------- ------- ------- ---------------- ------------- 1/1/2000 $ 9,421 $10,000 $10,000 $10,000 $10,000 1/31/2000 $ 9,320 $ 9,498 $ 9,366 $ 9,967 $10,039 2/28/2000 $10,094 $ 9,318 $ 9,620 $10,088 $10,084 3/31/2000 $ 9,953 $10,229 $ 9,995 $10,221 $10,135 4/30/2000 $ 9,583 $ 9,922 $ 9,471 $10,191 $10,186 5/31/2000 $ 9,379 $ 9,718 $ 9,241 $10,187 $10,241 6/30/2000 $ 9,649 $ 9,958 $ 9,605 $10,399 $10,285 7/31/2000 $ 9,625 $ 9,802 $ 9,204 $10,493 $10,333 8/31/2000 $ 9,998 $10,411 $ 9,286 $10,645 $10,386 9/30/2000 $ 9,895 $ 9,861 $ 8,836 $10,712 $10,443 10/31/2000 $ 9,758 $ 9,819 $ 8,629 $10,783 $10,496 11/30/2000 $ 9,405 $ 9,045 $ 8,307 $10,959 $10,554 12/31/2000 $ 9,709 $ 9,090 $ 8,604 $11,163 $10,615 1/31/2001 $ 9,971 $ 9,412 $ 8,600 $11,345 $10,684 2/28/2001 $ 9,658 $ 8,554 $ 7,956 $11,444 $10,727 3/31/2001 $ 9,409 $ 8,012 $ 7,429 $11,501 $10,781 4/30/2001 $ 9,707 $ 8,635 $ 7,950 $11,454 $10,825 5/31/2001 $ 9,767 $ 8,692 $ 7,676 $11,523 $10,867 6/30/2001 $ 9,724 $ 8,481 $ 7,365 $11,566 $10,899 7/31/2001 $ 9,681 $ 8,397 $ 7,232 $11,825 $10,935 8/31/2001 $ 9,561 $ 7,872 $ 7,050 $11,960 $10,971 9/30/2001 $ 9,039 $ 7,236 $ 6,337 $12,100 $11,019 10/31/2001 $ 9,290 $ 7,374 $ 6,499 $12,353 $11,048 11/30/2001 $ 9,515 $ 7,940 $ 6,739 $12,183 $11,071 12/31/2001 $ 9,620 $ 8,009 $ 6,780 $12,105 $11,089 1/31/2002 $ 9,611 $ 7,892 $ 6,420 $12,203 $11,104 2/28/2002 $ 9,602 $ 7,740 $ 6,465 $12,322 $11,119 3/31/2002 $ 9,800 $ 8,031 $ 6,818 $12,117 $11,136 4/30/2002 $ 9,827 $ 7,544 $ 6,868 $12,352 $11,153 5/31/2002 $ 9,791 $ 7,489 $ 6,961 $12,457 $11,170 6/30/2002 $ 9,508 $ 6,955 $ 6,686 $12,564 $11,187 7/31/2002 $ 9,125 $ 6,413 $ 6,027 $12,716 $11,202 8/31/2002 $ 9,187 $ 6,455 $ 6,014 $12,931 $11,219 9/30/2002 $ 8,904 $ 5,754 $ 5,370 $13,140 $11,237 10/31/2002 $ 9,074 $ 6,260 $ 5,659 $13,080 $11,254 11/30/2002 $ 9,316 $ 6,629 $ 5,917 $13,077 $11,271 12/31/2002 $ 9,255 $ 6,239 $ 5,718 $13,347 $11,283 1/31/2003 $ 9,219 $ 6,076 $ 5,480 $13,358 $11,296 2/28/2003 $ 9,192 $ 5,985 $ 5,355 $13,543 $11,305 3/31/2003 $ 9,180 $ 6,043 $ 5,253 $13,533 $11,318 4/30/2003 $ 9,516 $ 6,540 $ 5,774 $13,645 $11,329 5/31/2003 $ 9,879 $ 6,885 $ 6,130 $13,899 $11,341 6/30/2003 $ 9,936 $ 6,973 $ 6,281 $13,871 $11,355 7/31/2003 $ 9,945 $ 7,096 $ 6,434 $13,405 $11,363 8/31/2003 $10,164 $ 7,234 $ 6,591 $13,494 $11,371 9/30/2003 $10,233 $ 7,157 $ 6,795 $13,851 $11,381 10/31/2003 $10,480 $ 7,562 $ 7,219 $13,722 $11,390 11/30/2003 $10,645 $ 7,629 $ 7,381 $13,755 $11,399 12/31/2003 $10,861 $ 8,029 $ 7,958 $13,895 $11,408 1/31/2004 $10,944 $ 8,176 $ 8,071 $14,007 $11,418 2/29/2004 $11,046 $ 8,290 $ 8,258 $14,158 $11,425 3/31/2004 $11,061 $ 8,165 $ 8,308 $14,264 $11,435 4/30/2004 $10,784 $ 8,037 $ 8,127 $13,893 $11,443 5/31/2004 $10,848 $ 8,147 $ 8,162 $13,838 $11,451 6/30/2004 $10,978 $ 8,305 $ 8,345 $13,916 $11,456 7/31/2004 $10,829 $ 8,030 $ 8,075 $14,054 $11,467 8/31/2004 $10,913 $ 8,063 $ 8,112 $14,322 $11,478 9/30/2004 $11,091 $ 8,150 $ 8,326 $14,361 $11,491 10/31/2004 $11,250 $ 8,275 $ 8,610 $14,481 $11,504 11/30/2004 $11,539 $ 8,610 $ 9,201 $14,366 $11,516 12/31/2004 $11,728 $ 8,902 $ 9,605 $14,498 $11,538 1/31/2005 $11,578 $ 8,685 $ 9,429 $14,589 $11,554 2/28/2005 $11,756 $ 8,868 $ 9,839 $14,503 $11,572 3/31/2005 $11,597 $ 8,711 $ 9,595 $14,428 $11,599 4/30/2005 $11,474 $ 8,546 $ 9,381 $14,624 $11,623 5/31/2005 $11,644 $ 8,818 $ 9,395 $14,782 $11,650 6/30/2005 $11,749 $ 8,830 $ 9,523 $14,862 $11,676 7/31/2005 $11,929 $ 9,159 $ 9,816 $14,727 $11,702 8/31/2005 $11,976 $ 9,075 $10,067 $14,916 $11,734 9/30/2005 $12,064 $ 9,149 $10,517 $14,762 $11,767 10/31/2005 $11,883 $ 8,996 $10,211 $14,645 $11,795 11/30/2005 $12,131 $ 9,337 $10,463 $14,710 $11,834 12/31/2005 $12,280 $ 9,340 $10,951 $14,850 $11,871 1/31/2006 $12,655 $ 9,587 $11,624 $14,851 $11,905 2/28/2006 $12,655 $ 9,613 $11,600 $14,900 $11,943 3/31/2006 $12,790 $ 9,733 $11,988 $14,754 $11,990 4/30/2006 $12,925 $ 9,863 $12,570 $14,727 $12,033 5/31/2006 $12,664 $ 9,580 $12,097 $14,711 $12,080 6/30/2006 $12,672 $ 9,593 $12,101 $14,743 $12,125 7/31/2006 $12,672 $ 9,652 $12,222 $14,942 $12,175 8/31/2006 $12,849 $ 9,881 $12,562 $15,171 $12,228 9/30/2006 $12,898 $10,136 $12,583 $15,304 $12,282 10/31/2006 $13,174 $10,466 $13,074 $15,405 $12,330 11/30/2006 $13,441 $10,665 $13,468 $15,584 $12,382 12/31/2006 $13,497 $10,815 $13,892 $15,493 $12,436 1/31/2007 $13,619 $10,978 $13,987 $15,487 $12,486 2/28/2007 $13,649 $10,764 $14,102 $15,726 $12,535 3/31/2007 $13,784 $10,884 $14,468 $15,726 $12,592 4/30/2007 $14,049 $11,366 $15,124 $15,811 $12,646 5/31/2007 $14,252 $11,763 $15,409 $15,691 $12,703 6/30/2007 $14,213 $11,567 $15,433 $15,645 $12,751 7/31/2007 $14,109 $11,209 $15,207 $15,776 $12,799 8/31/2007 $14,150 $11,377 $14,973 $15,969 $12,872 9/30/2007 $14,609 $11,802 $15,777 $16,090 $12,919 10/31/2007 $14,934 $11,990 $16,399 $16,235 $12,958 11/30/2007 $14,630 $11,489 $15,864 $16,527 $13,017 12/31/2007 $14,616 $11,409 $15,508 $16,573 $13,047 1/31/2008 $14,250 $10,725 $14,077 $16,851 $13,114 2/29/2008 $14,272 $10,376 $14,283 $16,875 $13,136 3/31/2008 $14,155 $10,332 $14,139 $16,932 $13,167 4/30/2008 $14,457 $10,835 $14,925 $16,897 $13,181 5/31/2008 $14,608 $10,975 $15,099 $16,773 $13,187 6/30/2008 $14,082 $10,050 $13,867 $16,759 $13,207 7/31/2008 $13,983 $ 9,965 $13,423 $16,746 $13,233 8/31/2008 $14,005 $10,109 $12,883 $16,905 $13,251 9/30/2008 $13,356 $ 9,209 $11,024 $16,678 $13,287 10/31/2008 $12,243 $ 7,662 $ 8,800 $16,284 $13,308 11/30/2008 $12,020 $ 7,112 $ 8,329 $16,814 $13,322 12/31/2008 $12,363 $ 7,188 $ 8,830 $17,441 $13,320 1/31/2009 $12,114 $ 6,582 $ 7,965 $17,288 $13,319 2/28/2009 $11,661 $ 5,881 $ 7,151 $17,222 $13,321 3/31/2009 $12,139 $ 6,396 $ 7,607 $17,462 $13,325 4/30/2009 $12,764 $ 7,009 $ 8,593 $17,545 $13,329 5/31/2009 $13,197 $ 7,401 $ 9,626 $17,672 $13,330 6/30/2009 $13,204 $ 7,415 $ 9,574 $17,773 $13,331 7/31/2009 $13,767 $ 7,976 $10,449 $18,060 $13,333 8/31/2009 $13,939 $ 8,264 $11,019 $18,247 $13,336 9/30/2009 $14,389 $ 8,573 $11,443 $18,438 $13,338 10/31/2009 $14,285 $ 8,413 $11,300 $18,529 $13,341 11/30/2009 $14,597 $ 8,918 $11,529 $18,769 $13,342 12/31/2009 $14,795 $ 9,090 $11,697 $18,476 $13,342
AVERAGE ANNUAL TOTAL RETURN
CLASS B 12/31/09 - ------- -------- 1-Year +14.85% 5-Year +3.62% Since Inception (12/1/03) +4.73%
CLASS B (12/1/03-12/31/09) (PERFORMANCE GRAPH)
FRANKLIN TEMPLETON MSCI BARCLAYS CAPITAL P&R 90-DAY CONSERVATIVE TARGET S&P 500 EAFE U.S. AGGREGATE U.S. TREASURY DATE FUND - CLASS B INDEX INDEX INDEX BILL INDEX - ---------- ------------------- ------- ------- ---------------- ------------- 12/1/2003 $10,000 $10,000 $10,000 $10,000 $10,000 12/31/2003 $10,170 $10,524 $10,782 $10,102 $10,008 1/31/2004 $10,239 $10,718 $10,935 $10,183 $10,016 2/29/2004 $10,326 $10,867 $11,189 $10,293 $10,023 3/31/2004 $10,337 $10,703 $11,257 $10,370 $10,031 4/30/2004 $10,068 $10,535 $11,012 $10,101 $10,038 5/31/2004 $10,129 $10,679 $11,059 $10,060 $10,045 6/30/2004 $10,237 $10,887 $11,306 $10,117 $10,050 7/31/2004 $10,098 $10,527 $10,941 $10,217 $10,059 8/31/2004 $10,168 $10,569 $10,991 $10,412 $10,069 9/30/2004 $10,329 $10,684 $11,280 $10,440 $10,080 10/31/2004 $10,468 $10,847 $11,666 $10,528 $10,092 11/30/2004 $10,738 $11,286 $12,466 $10,444 $10,102 12/31/2004 $10,908 $11,670 $13,013 $10,540 $10,122 1/31/2005 $10,751 $11,385 $12,775 $10,606 $10,136 2/28/2005 $10,917 $11,625 $13,330 $10,544 $10,151 3/31/2005 $10,757 $11,419 $13,001 $10,490 $10,175 4/30/2005 $10,643 $11,202 $12,710 $10,632 $10,196 5/31/2005 $10,792 $11,559 $12,729 $10,747 $10,220 6/30/2005 $10,878 $11,575 $12,903 $10,805 $10,243 7/31/2005 $11,045 $12,006 $13,299 $10,707 $10,265 8/31/2005 $11,080 $11,896 $13,639 $10,844 $10,293 9/30/2005 $11,150 $11,993 $14,250 $10,732 $10,323 10/31/2005 $10,982 $11,793 $13,834 $10,647 $10,347 11/30/2005 $11,194 $12,239 $14,177 $10,695 $10,381 12/31/2005 $11,330 $12,243 $14,837 $10,796 $10,414 1/31/2006 $11,669 $12,567 $15,749 $10,797 $10,443 2/28/2006 $11,669 $12,601 $15,717 $10,833 $10,477 3/31/2006 $11,779 $12,758 $16,243 $10,726 $10,518 4/30/2006 $11,886 $12,929 $17,030 $10,707 $10,555 5/31/2006 $11,645 $12,557 $16,389 $10,695 $10,597 6/30/2006 $11,650 $12,574 $16,395 $10,718 $10,637 7/31/2006 $11,632 $12,652 $16,560 $10,863 $10,680 8/31/2006 $11,795 $12,953 $17,019 $11,029 $10,727 9/30/2006 $11,835 $13,287 $17,049 $11,126 $10,774 10/31/2006 $12,071 $13,720 $17,714 $11,200 $10,816 11/30/2006 $12,316 $13,981 $18,248 $11,330 $10,862 12/31/2006 $12,355 $14,177 $18,822 $11,264 $10,909 1/31/2007 $12,457 $14,391 $18,951 $11,259 $10,953 2/28/2007 $12,485 $14,110 $19,106 $11,433 $10,996 3/31/2007 $12,593 $14,267 $19,603 $11,433 $11,046 4/30/2007 $12,836 $14,899 $20,491 $11,495 $11,094 5/31/2007 $13,013 $15,419 $20,878 $11,408 $11,143 6/30/2007 $12,962 $15,163 $20,910 $11,374 $11,185 7/31/2007 $12,857 $14,693 $20,604 $11,469 $11,228 8/31/2007 $12,886 $14,913 $20,287 $11,610 $11,292 9/30/2007 $13,299 $15,471 $21,376 $11,698 $11,333 10/31/2007 $13,587 $15,717 $22,219 $11,803 $11,367 11/30/2007 $13,299 $15,060 $21,494 $12,015 $11,419 12/31/2007 $13,272 $14,955 $21,011 $12,049 $11,445 1/31/2008 $12,948 $14,058 $19,072 $12,251 $11,504 2/29/2008 $12,948 $13,602 $19,352 $12,268 $11,524 3/31/2008 $12,836 $13,543 $19,157 $12,310 $11,550 4/30/2008 $13,111 $14,203 $20,222 $12,284 $11,562 5/31/2008 $13,229 $14,387 $20,457 $12,194 $11,568 6/30/2008 $12,748 $13,174 $18,788 $12,184 $11,586 7/31/2008 $12,647 $13,063 $18,187 $12,174 $11,609 8/31/2008 $12,667 $13,252 $17,454 $12,290 $11,624 9/30/2008 $12,066 $12,071 $14,937 $12,125 $11,656 10/31/2008 $11,058 $10,044 $11,923 $11,839 $11,674 11/30/2008 $10,846 $ 9,323 $11,285 $12,224 $11,687 12/31/2008 $11,145 $ 9,422 $11,964 $12,680 $11,685 1/31/2009 $10,919 $ 8,628 $10,792 $12,568 $11,684 2/28/2009 $10,510 $ 7,709 $ 9,688 $12,521 $11,685 3/31/2009 $10,931 $ 8,385 $10,307 $12,695 $11,689 4/30/2009 $11,486 $ 9,187 $11,643 $12,756 $11,692 5/31/2009 $11,866 $ 9,701 $13,042 $12,848 $11,694 6/30/2009 $11,871 $ 9,720 $12,971 $12,921 $11,694 7/31/2009 $12,368 $10,456 $14,157 $13,130 $11,696 8/31/2009 $12,513 $10,833 $14,929 $13,266 $11,699 9/30/2009 $12,908 $11,237 $15,504 $13,405 $11,700 10/31/2009 $12,814 $11,029 $15,311 $13,471 $11,703 11/30/2009 $13,074 $11,690 $15,621 $13,645 $11,704 12/31/2009 $13,246 $11,916 $15,848 $13,432 $11,704
10 | Annual Report Performance Summary (CONTINUED) AVERAGE ANNUAL TOTAL RETURN
CLASS C 12/31/09 - ------- -------- 1-Year +17.84% 5-Year +3.98% 10-Year +3.84%
CLASS C (1/1/00-12/31/09) (PERFORMANCE GRAPH)
FRANKLIN TEMPLETON MSCI BARCLAYS CAPITAL P&R 90-DAY CONSERVATIVE TARGET S&P 500 EAFE U.S. AGGREGATE U.S. TREASURY DATE FUND - CLASS C INDEX INDEX INDEX BILL INDEX - ---------- ------------------- ------- ------- ---------------- ------------- 1/1/2000 $10,000 $10,000 $10,000 $10,000 $10,000 1/31/2000 $ 9,883 $ 9,498 $ 9,366 $ 9,967 $10,039 2/28/2000 $10,702 $ 9,318 $ 9,620 $10,088 $10,084 3/31/2000 $10,541 $10,229 $ 9,995 $10,221 $10,135 4/30/2000 $10,147 $ 9,922 $ 9,471 $10,191 $10,186 5/31/2000 $ 9,928 $ 9,718 $ 9,241 $10,187 $10,241 6/30/2000 $10,198 $ 9,958 $ 9,605 $10,399 $10,285 7/31/2000 $10,172 $ 9,802 $ 9,204 $10,493 $10,333 8/31/2000 $10,553 $10,411 $ 9,286 $10,645 $10,386 9/30/2000 $10,441 $ 9,861 $ 8,836 $10,712 $10,443 10/31/2000 $10,296 $ 9,819 $ 8,629 $10,783 $10,496 11/30/2000 $ 9,912 $ 9,045 $ 8,307 $10,959 $10,554 12/31/2000 $10,226 $ 9,090 $ 8,604 $11,163 $10,615 1/31/2001 $10,496 $ 9,412 $ 8,600 $11,345 $10,684 2/28/2001 $10,164 $ 8,554 $ 7,956 $11,444 $10,727 3/31/2001 $ 9,895 $ 8,012 $ 7,429 $11,501 $10,781 4/30/2001 $10,202 $ 8,635 $ 7,950 $11,454 $10,825 5/31/2001 $10,256 $ 8,692 $ 7,676 $11,523 $10,867 6/30/2001 $10,201 $ 8,481 $ 7,365 $11,566 $10,899 7/31/2001 $10,156 $ 8,397 $ 7,232 $11,825 $10,935 8/31/2001 $10,020 $ 7,872 $ 7,050 $11,960 $10,971 9/30/2001 $ 9,468 $ 7,236 $ 6,337 $12,100 $11,019 10/31/2001 $ 9,724 $ 7,374 $ 6,499 $12,353 $11,048 11/30/2001 $ 9,953 $ 7,940 $ 6,739 $12,183 $11,071 12/31/2001 $10,065 $ 8,009 $ 6,780 $12,105 $11,089 1/31/2002 $10,037 $ 7,892 $ 6,420 $12,203 $11,104 2/28/2002 $10,019 $ 7,740 $ 6,465 $12,322 $11,119 3/31/2002 $10,225 $ 8,031 $ 6,818 $12,117 $11,136 4/30/2002 $10,244 $ 7,544 $ 6,868 $12,352 $11,153 5/31/2002 $10,197 $ 7,489 $ 6,961 $12,457 $11,170 6/30/2002 $ 9,901 $ 6,955 $ 6,686 $12,564 $11,187 7/31/2002 $ 9,498 $ 6,413 $ 6,027 $12,716 $11,202 8/31/2002 $ 9,563 $ 6,455 $ 6,014 $12,931 $11,219 9/30/2002 $ 9,260 $ 5,754 $ 5,370 $13,140 $11,237 10/31/2002 $ 9,429 $ 6,260 $ 5,659 $13,080 $11,254 11/30/2002 $ 9,674 $ 6,629 $ 5,917 $13,077 $11,271 12/31/2002 $ 9,608 $ 6,239 $ 5,718 $13,347 $11,283 1/31/2003 $ 9,560 $ 6,076 $ 5,480 $13,358 $11,296 2/28/2003 $ 9,532 $ 5,985 $ 5,355 $13,543 $11,305 3/31/2003 $ 9,513 $ 6,043 $ 5,253 $13,533 $11,318 4/30/2003 $ 9,845 $ 6,540 $ 5,774 $13,645 $11,329 5/31/2003 $10,225 $ 6,885 $ 6,130 $13,899 $11,341 6/30/2003 $10,277 $ 6,973 $ 6,281 $13,871 $11,355 7/31/2003 $10,277 $ 7,096 $ 6,434 $13,405 $11,363 8/31/2003 $10,496 $ 7,234 $ 6,591 $13,494 $11,371 9/30/2003 $10,560 $ 7,157 $ 6,795 $13,851 $11,381 10/31/2003 $10,808 $ 7,562 $ 7,219 $13,722 $11,390 11/30/2003 $10,970 $ 7,629 $ 7,381 $13,755 $11,399 12/31/2003 $11,189 $ 8,029 $ 7,958 $13,895 $11,408 1/31/2004 $11,265 $ 8,176 $ 8,071 $14,007 $11,418 2/29/2004 $11,362 $ 8,290 $ 8,258 $14,158 $11,425 3/31/2004 $11,375 $ 8,165 $ 8,308 $14,264 $11,435 4/30/2004 $11,077 $ 8,037 $ 8,127 $13,893 $11,443 5/31/2004 $11,144 $ 8,147 $ 8,162 $13,838 $11,451 6/30/2004 $11,257 $ 8,305 $ 8,345 $13,916 $11,456 7/31/2004 $11,103 $ 8,030 $ 8,075 $14,054 $11,467 8/31/2004 $11,180 $ 8,063 $ 8,112 $14,322 $11,478 9/30/2004 $11,364 $ 8,150 $ 8,326 $14,361 $11,491 10/31/2004 $11,518 $ 8,275 $ 8,610 $14,481 $11,504 11/30/2004 $11,808 $ 8,610 $ 9,201 $14,366 $11,516 12/31/2004 $11,994 $ 8,902 $ 9,605 $14,498 $11,538 1/31/2005 $11,819 $ 8,685 $ 9,429 $14,589 $11,554 2/28/2005 $12,004 $ 8,868 $ 9,839 $14,503 $11,572 3/31/2005 $11,835 $ 8,711 $ 9,595 $14,428 $11,599 4/30/2005 $11,708 $ 8,546 $ 9,381 $14,624 $11,623 5/31/2005 $11,864 $ 8,818 $ 9,395 $14,782 $11,650 6/30/2005 $11,969 $ 8,830 $ 9,523 $14,862 $11,676 7/31/2005 $12,144 $ 9,159 $ 9,816 $14,727 $11,702 8/31/2005 $12,183 $ 9,075 $10,067 $14,916 $11,734 9/30/2005 $12,262 $ 9,149 $10,517 $14,762 $11,767 10/31/2005 $12,076 $ 8,996 $10,211 $14,645 $11,795 11/30/2005 $12,311 $ 9,337 $10,463 $14,710 $11,834 12/31/2005 $12,453 $ 9,340 $10,951 $14,850 $11,871 1/31/2006 $12,838 $ 9,587 $11,624 $14,851 $11,905 2/28/2006 $12,829 $ 9,613 $11,600 $14,900 $11,943 3/31/2006 $12,961 $ 9,733 $11,988 $14,754 $11,990 4/30/2006 $13,080 $ 9,863 $12,570 $14,727 $12,033 5/31/2006 $12,803 $ 9,580 $12,097 $14,711 $12,080 6/30/2006 $12,817 $ 9,593 $12,101 $14,743 $12,125 7/31/2006 $12,797 $ 9,652 $12,222 $14,942 $12,175 8/31/2006 $12,968 $ 9,881 $12,562 $15,171 $12,228 9/30/2006 $13,014 $10,136 $12,583 $15,304 $12,282 10/31/2006 $13,286 $10,466 $13,074 $15,405 $12,330 11/30/2006 $13,548 $10,665 $13,468 $15,584 $12,382 12/31/2006 $13,593 $10,815 $13,892 $15,493 $12,436 1/31/2007 $13,707 $10,978 $13,987 $15,487 $12,486 2/28/2007 $13,727 $10,764 $14,102 $15,726 $12,535 3/31/2007 $13,859 $10,884 $14,468 $15,726 $12,592 4/30/2007 $14,118 $11,366 $15,124 $15,811 $12,646 5/31/2007 $14,314 $11,763 $15,409 $15,691 $12,703 6/30/2007 $14,259 $11,567 $15,433 $15,645 $12,751 7/31/2007 $14,143 $11,209 $15,207 $15,776 $12,799 8/31/2007 $14,185 $11,377 $14,973 $15,969 $12,872 9/30/2007 $14,625 $11,802 $15,777 $16,090 $12,919 10/31/2007 $14,955 $11,990 $16,399 $16,235 $12,958 11/30/2007 $14,636 $11,489 $15,864 $16,527 $13,017 12/31/2007 $14,609 $11,409 $15,508 $16,573 $13,047 1/31/2008 $14,239 $10,725 $14,077 $16,851 $13,114 2/29/2008 $14,239 $10,376 $14,283 $16,875 $13,136 3/31/2008 $14,117 $10,332 $14,139 $16,932 $13,167 4/30/2008 $14,422 $10,835 $14,925 $16,897 $13,181 5/31/2008 $14,553 $10,975 $15,099 $16,773 $13,187 6/30/2008 $14,023 $10,050 $13,867 $16,759 $13,207 7/31/2008 $13,912 $ 9,965 $13,423 $16,746 $13,233 8/31/2008 $13,934 $10,109 $12,883 $16,905 $13,251 9/30/2008 $13,277 $ 9,209 $11,024 $16,678 $13,287 10/31/2008 $12,155 $ 7,662 $ 8,800 $16,284 $13,308 11/30/2008 $11,931 $ 7,112 $ 8,329 $16,814 $13,322 12/31/2008 $12,266 $ 7,188 $ 8,830 $17,441 $13,320 1/31/2009 $12,015 $ 6,582 $ 7,965 $17,288 $13,319 2/28/2009 $11,560 $ 5,881 $ 7,151 $17,222 $13,321 3/31/2009 $12,031 $ 6,396 $ 7,607 $17,462 $13,325 4/30/2009 $12,636 $ 7,009 $ 8,593 $17,545 $13,329 5/31/2009 $13,059 $ 7,401 $ 9,626 $17,672 $13,330 6/30/2009 $13,055 $ 7,415 $ 9,574 $17,773 $13,331 7/31/2009 $13,608 $ 7,976 $10,449 $18,060 $13,333 8/31/2009 $13,758 $ 8,264 $11,019 $18,247 $13,336 9/30/2009 $14,198 $ 8,573 $11,443 $18,438 $13,338 10/31/2009 $14,094 $ 8,413 $11,300 $18,529 $13,341 11/30/2009 $14,383 $ 8,918 $11,529 $18,769 $13,342 12/31/2009 $14,577 $ 9,090 $11,697 $18,476 $13,342
AVERAGE ANNUAL TOTAL RETURN
CLASS R 12/31/09 - ------- -------- 1-Year +19.45% 5-Year +4.50% Since Inception (1/1/02) +5.27%
CLASS R (1/1/02-12/31/09) (PERFORMANCE GRAPH)
FRANKLIN TEMPLETON MSCI BARCLAYS CAPITAL P&R 90-DAY CONSERVATIVE TARGET S&P 500 EAFE U.S. AGGREGATE U.S. TREASURY DATE FUND - CLASS R INDEX INDEX INDEX BILL INDEX - ---------- ------------------- ------- ------- ---------------- ------------- 1/1/2002 $10,000 $10,000 $10,000 $10,000 $10,000 1/31/2002 $ 9,982 $ 9,854 $ 9,469 $10,081 $10,014 2/28/2002 $ 9,972 $ 9,664 $ 9,536 $10,179 $10,027 3/31/2002 $10,178 $10,027 $10,057 $10,009 $10,042 4/30/2002 $10,196 $ 9,420 $10,130 $10,204 $10,057 5/31/2002 $10,159 $ 9,350 $10,267 $10,290 $10,073 6/30/2002 $ 9,869 $ 8,684 $ 9,862 $10,379 $10,088 7/31/2002 $ 9,461 $ 8,007 $ 8,889 $10,505 $10,102 8/31/2002 $ 9,526 $ 8,060 $ 8,871 $10,682 $10,117 9/30/2002 $ 9,232 $ 7,184 $ 7,921 $10,855 $10,133 10/31/2002 $ 9,409 $ 7,816 $ 8,347 $10,806 $10,149 11/30/2002 $ 9,650 $ 8,276 $ 8,727 $10,803 $10,165 12/31/2002 $ 9,591 $ 7,790 $ 8,434 $11,026 $10,175 1/31/2003 $ 9,554 $ 7,586 $ 8,083 $11,035 $10,186 2/28/2003 $ 9,516 $ 7,472 $ 7,898 $11,188 $10,195 3/31/2003 $ 9,510 $ 7,545 $ 7,749 $11,179 $10,207 4/30/2003 $ 9,850 $ 8,166 $ 8,517 $11,272 $10,217 5/31/2003 $10,228 $ 8,596 $ 9,041 $11,482 $10,227 6/30/2003 $10,284 $ 8,706 $ 9,265 $11,459 $10,240 7/31/2003 $10,293 $ 8,859 $ 9,491 $11,074 $10,247 8/31/2003 $10,511 $ 9,032 $ 9,721 $11,147 $10,255 9/30/2003 $10,584 $ 8,936 $10,023 $11,442 $10,263 10/31/2003 $10,831 $ 9,442 $10,648 $11,336 $10,272 11/30/2003 $11,002 $ 9,525 $10,887 $11,363 $10,280 12/31/2003 $11,228 $10,024 $11,738 $11,478 $10,288 1/31/2004 $11,314 $10,208 $11,904 $11,571 $10,297 2/29/2004 $11,410 $10,350 $12,181 $11,696 $10,303 3/31/2004 $11,431 $10,194 $12,255 $11,784 $10,312 4/30/2004 $11,134 $10,034 $11,988 $11,477 $10,319 5/31/2004 $11,210 $10,172 $12,040 $11,431 $10,326 6/30/2004 $11,328 $10,370 $12,308 $11,496 $10,331 7/31/2004 $11,174 $10,026 $11,911 $11,610 $10,341 8/31/2004 $11,260 $10,067 $11,966 $11,831 $10,351 9/30/2004 $11,449 $10,176 $12,280 $11,863 $10,363 10/31/2004 $11,604 $10,332 $12,700 $11,963 $10,375 11/30/2004 $11,902 $10,750 $13,571 $11,867 $10,385 12/31/2004 $12,098 $11,115 $14,167 $11,976 $10,405 1/31/2005 $11,932 $10,844 $13,908 $12,052 $10,420 2/28/2005 $12,117 $11,073 $14,512 $11,981 $10,436 3/31/2005 $11,948 $10,877 $14,153 $11,919 $10,460 4/30/2005 $11,821 $10,670 $13,837 $12,080 $10,482 5/31/2005 $11,996 $11,010 $13,858 $12,211 $10,506 6/30/2005 $12,097 $11,025 $14,047 $12,278 $10,530 7/31/2005 $12,283 $11,435 $14,479 $12,166 $10,553 8/31/2005 $12,332 $11,331 $14,849 $12,322 $10,582 9/30/2005 $12,415 $11,423 $15,513 $12,195 $10,612 10/31/2005 $12,228 $11,232 $15,061 $12,098 $10,636 11/30/2005 $12,474 $11,657 $15,433 $12,152 $10,672 12/31/2005 $12,627 $11,661 $16,153 $12,267 $10,705 1/31/2006 $13,013 $11,970 $17,145 $12,268 $10,736 2/28/2006 $13,013 $12,003 $17,110 $12,309 $10,770 3/31/2006 $13,155 $12,152 $17,683 $12,188 $10,812 4/30/2006 $13,284 $12,315 $18,540 $12,166 $10,851 5/31/2006 $13,005 $11,961 $17,843 $12,153 $10,893 6/30/2006 $13,025 $11,977 $17,849 $12,179 $10,934 7/31/2006 $13,015 $12,051 $18,028 $12,343 $10,979 8/31/2006 $13,197 $12,338 $18,528 $12,532 $11,028 9/30/2006 $13,239 $12,655 $18,561 $12,642 $11,076 10/31/2006 $13,524 $13,068 $19,284 $12,726 $11,119 11/30/2006 $13,798 $13,316 $19,866 $12,874 $11,166 12/31/2006 $13,855 $13,503 $20,491 $12,799 $11,215 1/31/2007 $13,969 $13,707 $20,631 $12,794 $11,260 2/28/2007 $14,000 $13,439 $20,800 $12,991 $11,304 3/31/2007 $14,134 $13,590 $21,340 $12,991 $11,355 4/30/2007 $14,406 $14,192 $22,308 $13,061 $11,404 5/31/2007 $14,615 $14,687 $22,729 $12,962 $11,455 6/30/2007 $14,565 $14,443 $22,764 $12,924 $11,499 7/31/2007 $14,458 $13,995 $22,431 $13,032 $11,542 8/31/2007 $14,501 $14,205 $22,086 $13,192 $11,608 9/30/2007 $14,953 $14,736 $23,272 $13,292 $11,650 10/31/2007 $15,297 $14,970 $24,189 $13,411 $11,686 11/30/2007 $14,974 $14,345 $23,399 $13,652 $11,738 12/31/2007 $14,951 $14,245 $22,874 $13,691 $11,766 1/31/2008 $14,587 $13,391 $20,763 $13,921 $11,826 2/29/2008 $14,598 $12,956 $21,067 $13,940 $11,846 3/31/2008 $14,472 $12,900 $20,856 $13,987 $11,874 4/30/2008 $14,794 $13,528 $22,015 $13,958 $11,886 5/31/2008 $14,938 $13,703 $22,271 $13,856 $11,892 6/30/2008 $14,399 $12,548 $20,454 $13,845 $11,910 7/31/2008 $14,285 $12,442 $19,799 $13,833 $11,934 8/31/2008 $14,308 $12,622 $19,002 $13,965 $11,950 9/30/2008 $13,646 $11,498 $16,261 $13,777 $11,983 10/31/2008 $12,506 $ 9,567 $12,981 $13,452 $12,001 11/30/2008 $12,278 $ 8,880 $12,285 $13,890 $12,014 12/31/2008 $12,621 $ 8,975 $13,025 $14,408 $12,012 1/31/2009 $12,366 $ 8,218 $11,749 $14,281 $12,011 2/28/2009 $11,902 $ 7,343 $10,547 $14,227 $12,013 3/31/2009 $12,385 $ 7,986 $11,221 $14,425 $12,016 4/30/2009 $13,024 $ 8,751 $12,675 $14,494 $12,020 5/31/2009 $13,467 $ 9,240 $14,198 $14,599 $12,021 6/30/2009 $13,467 $ 9,259 $14,121 $14,682 $12,022 7/31/2009 $14,042 $ 9,959 $15,413 $14,919 $12,024 8/31/2009 $14,207 $10,318 $16,253 $15,073 $12,026 9/30/2009 $14,660 $10,703 $16,878 $15,232 $12,028 10/31/2009 $14,565 $10,505 $16,668 $15,307 $12,031 11/30/2009 $14,861 $11,135 $17,006 $15,505 $12,031 12/31/2009 $15,076 $11,350 $17,253 $15,263 $12,032
Annual Report | 11 Performance Summary (CONTINUED) AVERAGE ANNUAL TOTAL RETURN
ADVISOR CLASS(6) 12/31/09 - ---------------- -------- 1-Year +19.97% 5-Year +4.96% 10-Year +4.72%
ADVISOR CLASS (1/1/00-12/31/09)(6) (PERFORMANCE GRAPH)
FRANKLIN TEMPLETON CONSERVATIVE TARGET MSCI BARCLAYS CAPITAL P&R 90-DAY FUND - ADVISOR S&P 500 EAFE U.S. AGGREGATE U.S. TREASURY DATE CLASS INDEX INDEX INDEX BILL INDEX - ---------- ------------------- ------- ------- ---------------- ------------- 1/1/2000 $10,000 $10,000 $10,000 $10,000 $10,000 1/31/2000 $ 9,892 $ 9,498 $ 9,366 $ 9,967 $10,039 2/28/2000 $10,714 $ 9,318 $ 9,620 $10,088 $10,084 3/31/2000 $10,564 $10,229 $ 9,995 $10,221 $10,135 4/30/2000 $10,172 $ 9,922 $ 9,471 $10,191 $10,186 5/31/2000 $ 9,955 $ 9,718 $ 9,241 $10,187 $10,241 6/30/2000 $10,241 $ 9,958 $ 9,605 $10,399 $10,285 7/31/2000 $10,216 $ 9,802 $ 9,204 $10,493 $10,333 8/31/2000 $10,612 $10,411 $ 9,286 $10,645 $10,386 9/30/2000 $10,502 $ 9,861 $ 8,836 $10,712 $10,443 10/31/2000 $10,357 $ 9,819 $ 8,629 $10,783 $10,496 11/30/2000 $ 9,983 $ 9,045 $ 8,307 $10,959 $10,554 12/31/2000 $10,305 $ 9,090 $ 8,604 $11,163 $10,615 1/31/2001 $10,584 $ 9,412 $ 8,600 $11,345 $10,684 2/28/2001 $10,251 $ 8,554 $ 7,956 $11,444 $10,727 3/31/2001 $ 9,987 $ 8,012 $ 7,429 $11,501 $10,781 4/30/2001 $10,303 $ 8,635 $ 7,950 $11,454 $10,825 5/31/2001 $10,366 $ 8,692 $ 7,676 $11,523 $10,867 6/30/2001 $10,321 $ 8,481 $ 7,365 $11,566 $10,899 7/31/2001 $10,275 $ 8,397 $ 7,232 $11,825 $10,935 8/31/2001 $10,148 $ 7,872 $ 7,050 $11,960 $10,971 9/30/2001 $ 9,594 $ 7,236 $ 6,337 $12,100 $11,019 10/31/2001 $ 9,860 $ 7,374 $ 6,499 $12,353 $11,048 11/30/2001 $10,099 $ 7,940 $ 6,739 $12,183 $11,071 12/31/2001 $10,211 $ 8,009 $ 6,780 $12,105 $11,089 1/31/2002 $10,201 $ 7,892 $ 6,420 $12,203 $11,104 2/28/2002 $10,192 $ 7,740 $ 6,465 $12,322 $11,119 3/31/2002 $10,402 $ 8,031 $ 6,818 $12,117 $11,136 4/30/2002 $10,430 $ 7,544 $ 6,868 $12,352 $11,153 5/31/2002 $10,392 $ 7,489 $ 6,961 $12,457 $11,170 6/30/2002 $10,092 $ 6,955 $ 6,686 $12,564 $11,187 7/31/2002 $ 9,685 $ 6,413 $ 6,027 $12,716 $11,202 8/31/2002 $ 9,751 $ 6,455 $ 6,014 $12,931 $11,219 9/30/2002 $ 9,450 $ 5,754 $ 5,370 $13,140 $11,237 10/31/2002 $ 9,631 $ 6,260 $ 5,659 $13,080 $11,254 11/30/2002 $ 9,888 $ 6,629 $ 5,917 $13,077 $11,271 12/31/2002 $ 9,824 $ 6,239 $ 5,718 $13,347 $11,283 1/31/2003 $ 9,785 $ 6,076 $ 5,480 $13,358 $11,296 2/28/2003 $ 9,756 $ 5,985 $ 5,355 $13,543 $11,305 3/31/2003 $ 9,743 $ 6,043 $ 5,253 $13,533 $11,318 4/30/2003 $10,100 $ 6,540 $ 5,774 $13,645 $11,329 5/31/2003 $10,486 $ 6,885 $ 6,130 $13,899 $11,341 6/30/2003 $10,546 $ 6,973 $ 6,281 $13,871 $11,355 7/31/2003 $10,556 $ 7,096 $ 6,434 $13,405 $11,363 8/31/2003 $10,788 $ 7,234 $ 6,591 $13,494 $11,371 9/30/2003 $10,861 $ 7,157 $ 6,795 $13,851 $11,381 10/31/2003 $11,123 $ 7,562 $ 7,219 $13,722 $11,390 11/30/2003 $11,298 $ 7,629 $ 7,381 $13,755 $11,399 12/31/2003 $11,528 $ 8,029 $ 7,958 $13,895 $11,408 1/31/2004 $11,616 $ 8,176 $ 8,071 $14,007 $11,418 2/29/2004 $11,724 $ 8,290 $ 8,258 $14,158 $11,425 3/31/2004 $11,741 $ 8,165 $ 8,308 $14,264 $11,435 4/30/2004 $11,446 $ 8,037 $ 8,127 $13,893 $11,443 5/31/2004 $11,515 $ 8,147 $ 8,162 $13,838 $11,451 6/30/2004 $11,652 $ 8,305 $ 8,345 $13,916 $11,456 7/31/2004 $11,494 $ 8,030 $ 8,075 $14,054 $11,467 8/31/2004 $11,583 $ 8,063 $ 8,112 $14,322 $11,478 9/30/2004 $11,773 $ 8,150 $ 8,326 $14,361 $11,491 10/31/2004 $11,941 $ 8,275 $ 8,610 $14,481 $11,504 11/30/2004 $12,248 $ 8,610 $ 9,201 $14,366 $11,516 12/31/2004 $12,448 $ 8,902 $ 9,605 $14,498 $11,538 1/31/2005 $12,289 $ 8,685 $ 9,429 $14,589 $11,554 2/28/2005 $12,478 $ 8,868 $ 9,839 $14,503 $11,572 3/31/2005 $12,309 $ 8,711 $ 9,595 $14,428 $11,599 4/30/2005 $12,179 $ 8,546 $ 9,381 $14,624 $11,623 5/31/2005 $12,359 $ 8,818 $ 9,395 $14,782 $11,650 6/30/2005 $12,470 $ 8,830 $ 9,523 $14,862 $11,676 7/31/2005 $12,661 $ 9,159 $ 9,816 $14,727 $11,702 8/31/2005 $12,712 $ 9,075 $10,067 $14,916 $11,734 9/30/2005 $12,805 $ 9,149 $10,517 $14,762 $11,767 10/31/2005 $12,613 $ 8,996 $10,211 $14,645 $11,795 11/30/2005 $12,876 $ 9,337 $10,463 $14,710 $11,834 12/31/2005 $13,024 $ 9,340 $10,951 $14,850 $11,871 1/31/2006 $13,433 $ 9,587 $11,624 $14,851 $11,905 2/28/2006 $13,433 $ 9,613 $11,600 $14,900 $11,943 3/31/2006 $13,581 $ 9,733 $11,988 $14,754 $11,990 4/30/2006 $13,725 $ 9,863 $12,570 $14,727 $12,033 5/31/2006 $13,448 $ 9,580 $12,097 $14,711 $12,080 6/30/2006 $13,465 $ 9,593 $12,101 $14,743 $12,125 7/31/2006 $13,465 $ 9,652 $12,222 $14,942 $12,175 8/31/2006 $13,653 $ 9,881 $12,562 $15,171 $12,228 9/30/2006 $13,713 $10,136 $12,583 $15,304 $12,282 10/31/2006 $14,008 $10,466 $13,074 $15,405 $12,330 11/30/2006 $14,291 $10,665 $13,468 $15,584 $12,382 12/31/2006 $14,363 $10,815 $13,892 $15,493 $12,436 1/31/2007 $14,492 $10,978 $13,987 $15,487 $12,486 2/28/2007 $14,525 $10,764 $14,102 $15,726 $12,535 3/31/2007 $14,674 $10,884 $14,468 $15,726 $12,592 4/30/2007 $14,956 $11,366 $15,124 $15,811 $12,646 5/31/2007 $15,184 $11,763 $15,409 $15,691 $12,703 6/30/2007 $15,140 $11,567 $15,433 $15,645 $12,751 7/31/2007 $15,029 $11,209 $15,207 $15,776 $12,799 8/31/2007 $15,074 $11,377 $14,973 $15,969 $12,872 9/30/2007 $15,561 $11,802 $15,777 $16,090 $12,919 10/31/2007 $15,919 $11,990 $16,399 $16,235 $12,958 11/30/2007 $15,595 $11,489 $15,864 $16,527 $13,017 12/31/2007 $15,580 $11,409 $15,508 $16,573 $13,047 1/31/2008 $15,201 $10,725 $14,077 $16,851 $13,114 2/29/2008 $15,224 $10,376 $14,283 $16,875 $13,136 3/31/2008 $15,105 $10,332 $14,139 $16,932 $13,167 4/30/2008 $15,440 $10,835 $14,925 $16,897 $13,181 5/31/2008 $15,590 $10,975 $15,099 $16,773 $13,187 6/30/2008 $15,040 $10,050 $13,867 $16,759 $13,207 7/31/2008 $14,934 $ 9,965 $13,423 $16,746 $13,233 8/31/2008 $14,957 $10,109 $12,883 $16,905 $13,251 9/30/2008 $14,273 $ 9,209 $11,024 $16,678 $13,287 10/31/2008 $13,082 $ 7,662 $ 8,800 $16,284 $13,308 11/30/2008 $12,844 $ 7,112 $ 8,329 $16,814 $13,322 12/31/2008 $13,219 $ 7,188 $ 8,830 $17,441 $13,320 1/31/2009 $12,953 $ 6,582 $ 7,965 $17,288 $13,319 2/28/2009 $12,480 $ 5,881 $ 7,151 $17,222 $13,321 3/31/2009 $12,987 $ 6,396 $ 7,607 $17,462 $13,325 4/30/2009 $13,669 $ 7,009 $ 8,593 $17,545 $13,329 5/31/2009 $14,132 $ 7,401 $ 9,626 $17,672 $13,330 6/30/2009 $14,135 $ 7,415 $ 9,574 $17,773 $13,331 7/31/2009 $14,751 $ 7,976 $10,449 $18,060 $13,333 8/31/2009 $14,923 $ 8,264 $11,019 $18,247 $13,336 9/30/2009 $15,414 $ 8,573 $11,443 $18,438 $13,338 10/31/2009 $15,315 $ 8,413 $11,300 $18,529 $13,341 11/30/2009 $15,637 $ 8,918 $11,529 $18,769 $13,342 12/31/2009 $15,859 $ 9,090 $11,697 $18,476 $13,342
ENDNOTES WHILE AN ASSET ALLOCATION PLAN CAN BE A VALUABLE TOOL TO HELP REDUCE OVERALL VOLATILITY, ALL INVESTMENTS INVOLVE SOME DEGREE OF RISK. TYPICALLY, THE MORE AGGRESSIVE THE INVESTMENT, OR THE GREATER THE POTENTIAL RETURN, THE MORE RISK INVOLVED. GENERALLY, INVESTORS SHOULD BE COMFORTABLE WITH SOME FLUCTUATION IN THE VALUE OF THEIR INVESTMENTS, ESPECIALLY OVER THE SHORT TERM. STOCKS HAVE HISTORICALLY OUTPERFORMED OTHER ASSET CLASSES OVER THE LONG TERM, BUT THEY TEND TO FLUCTUATE MORE DRAMATICALLY OVER THE SHORTER TERM. BOND PRICES GENERALLY MOVE IN THE OPPOSITE DIRECTION OF INTEREST RATES. THUS, AS PRICES OF BONDS IN A FUND ADJUST TO A RISE IN INTEREST RATES, THAT FUND'S SHARE PRICE MAY DECLINE. BECAUSE THIS FUND INVESTS IN UNDERLYING FUNDS, WHICH MAY ENGAGE IN A VARIETY OF INVESTMENT STRATEGIES INVOLVING CERTAIN RISKS, THE FUND MAY BE SUBJECT TO THOSE SAME RISKS. THESE RISKS ARE DESCRIBED IN THE FUND'S PROSPECTUS. CLASS B: These shares have higher annual fees and expenses than Class A shares. CLASS C: Prior to 1/1/04, these shares were offered with an initial sales charge; thus actual total returns would have differed. These shares have higher annual fees and expenses than Class A shares. CLASS R: Shares are available to certain eligible investors as described in the prospectus. These shares have higher annual fees and expenses than Class A shares. ADVISOR CLASS: Shares are available to certain eligible investors as described in the prospectus. (1.) If the manager had not waived fees, the Fund's total returns would have been lower. (2.) Cumulative total return represents the change in value of an investment over the periods indicated. (3.) Average annual total return represents the average annual change in value of an investment over the periods indicated. (4.) These figures represent the value of a hypothetical $10,000 investment in the Fund over the periods indicated. (5.) Figures are as stated in the Fund's prospectus current as of the date of this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses to become higher than the figures shown. (6.) Effective 12/1/05, the Fund began offering Advisor Class shares, which do not have sales charges or a Rule 12b-1 plan. Performance quotations for this class reflect the following methods of calculation: (a) For periods prior to 12/1/05, a restated figure is used based upon the Fund's Class A performance, excluding the effect of Class A's maximum initial sales charge, but reflecting the effect of the Class A Rule 12b-1 fees; and (b) for periods after 11/30/05, actual Advisor Class performance is used reflecting all charges and fees applicable to that class. Since 12/1/05 (commencement of sales), the cumulative and average annual total returns of Advisor Class shares were +22.59% and +5.12%. (7.) Source: (C) 2009 Morningstar. See page 6 for descriptions of the S&P 500, the MSCI EAFE Index, the BC U.S. Aggregate Index and the P&R 90 Day U.S. T-Bill Index. 12 | Annual Report Your Fund's Expenses FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND As a Fund shareholder, you can incur two types of costs: - - Transaction costs, including sales charges (loads) on Fund purchases; and - - Ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses. The following table shows ongoing costs of investing in the Fund and can help you understand these costs and compare them with those of other mutual funds. The table assumes a $1,000 investment held for the six months indicated. ACTUAL FUND EXPENSES The first line (Actual) for each share class listed in the table provides actual account values and expenses. The "Ending Account Value" is derived from the Fund's actual return, which includes the effect of Fund expenses. You can estimate the expenses you paid during the period by following these steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS ILLUSTRATION: 1. Divide your account value by $1,000. IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6. 2. Multiply the result by the number under the heading "Expenses Paid During Period." IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50. In this illustration, the estimated expenses paid this period are $64.50. HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS Information in the second line (Hypothetical) for each class in the table can help you compare ongoing costs of investing in the Fund with those of other mutual funds. This information may not be used to estimate the actual ending account balance or expenses you paid during the period. The hypothetical "Ending Account Value" is based on the actual expense ratio for each class and an assumed 5% annual rate of return before expenses, which does not represent the Fund's actual return. The figure under the heading "Expenses Paid During Period" shows the hypothetical expenses your account would have incurred under this scenario. You can compare this figure with the 5% hypothetical examples that appear in shareholder reports of other funds. Annual Report | 13 Your Fund's Expenses (CONTINUED) PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES. Therefore, the second line for each class is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transaction costs were included, your total costs would have been higher. Please refer to the Fund prospectus for additional information on operating expenses.
BEGINNING ENDING ACCOUNT ACCOUNT EXPENSES PAID EXPENSES PAID VALUE VALUE DURING PERIOD* DURING PERIOD** 7/1/09 12/31/09 7/1/09-12/31/09 7/1/09-12/31/09 --------- --------- --------------- --------------- CLASS A Actual $1,000 $1,120.50 $2.67 $ 6.47 Hypothetical (5% return before expenses) $1,000 $1,022.68 $2.55 $ 6.16 CLASS B Actual $1,000 $1,115.80 $6.61 $10.40 Hypothetical (5% return before expenses) $1,000 $1,018.95 $6.31 $ 9.91 CLASS C Actual $1,000 $1,116.50 $6.67 $10.46 Hypothetical (5% return before expenses) $1,000 $1,018.90 $6.36 $ 9.96 CLASS R Actual $1,000 $1,119.50 $4.01 $ 7.80 Hypothetical (5% return before expenses) $1,000 $1,021.42 $3.82 $ 7.43 ADVISOR CLASS Actual $1,000 $1,121.90 $1.34 $ 5.13 Hypothetical (5% return before expenses) $1,000 $1,023.95 $1.28 $ 4.89
* Expenses are calculated using the most recent six-month expense ratio excluding expenses of the underlying funds, net of expense waivers, annualized for each class (A: 0.50%; B: 1.24%; C: 1.25%; R: 0.75%; and Advisor: 0.25%), multiplied by the average account value over the period, multiplied by 184/365 to reflect the one-half year period. A portion of the Fund's expenses have been paid by the underlying funds in which the Fund invests. ** Expenses are calculated using the most recent six-month expense ratio including expenses of the underlying funds, net of expense waivers, annualized for each class (A: 1.21%; B: 1.95%; C: 1.96%; R: 1.46%; and Advisor: 0.96%), multiplied by the average account value over the period, multiplied by 184/365 to reflect the one-half year period. A portion of the Fund's expenses have been paid by the underlying funds in which the Fund invests. 14 | Annual Report Franklin Templeton Moderate Target Fund YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Templeton Moderate Target Fund seeks the highest level of long-term total return consistent with a moderate level of risk.(1) PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM FIGURES SHOWN. PLEASE VISIT franklintempleton.com OR CALL (800) 342-5236 FOR MOST RECENT MONTH-END PERFORMANCE. ASSET ALLOCATION* Franklin Templeton Moderate Target Fund Based on Total Net Assets as of 12/31/09 (PIE CHART) Domestic Equity ............................. 40.7% Domestic Fixed Income ....................... 19.7% Foreign Equity .............................. 17.7% Foreign Fixed Income ........................ 12.2% Short-Term Investments & Other Net Assets ... 9.7%
* The asset allocation is based on the Statement of Investments (SOI), which classifies each underlying fund into a broad asset class. This annual report for Franklin Templeton Moderate Target Fund covers the fiscal year ended December 31, 2009. PERFORMANCE OVERVIEW Franklin Templeton Moderate Target Fund - Class A delivered a +24.68% cumulative total return for the 12 months under review. By comparison the Fund's benchmarks, the Standard & Poor's 500 Index (S&P 500) and Morgan Stanley Capital International (MSCI) Europe, Australasia, Far East (EAFE) Index for equities, the Barclays Capital (BC) U.S. Aggregate Index for fixed income, and the Payden & Rygel (P&R) 90 Day U.S. T-Bill Index for short-term investments and other net assets, posted total returns of +26.46%, (1.) The risk/reward potential is based on the Fund's goal and level of risk. It is not indicative of the Fund's actual or implied performance or portfolio composition, which may change on a continuous basis. THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S SOI, WHICH BEGINS ON PAGE 46. Annual Report | 15 TOP 10 FUND HOLDINGS Franklin Templeton Moderate Target Fund 12/31/09
% OF TOTAL NET ASSETS ---------- Franklin Flex Cap Growth Fund - Advisor Class 14.4% Franklin U.S. Government Securities Fund - Advisor Class 11.1% Templeton Global Bond Fund - Advisor Class 10.9% Mutual Shares Fund - Class Z 9.9% Franklin Total Return Fund - Advisor Class 8.6% Franklin Growth Opportunities Fund - Advisor Class 6.5% Mutual European Fund - Class Z 6.3% Templeton Foreign Fund - Advisor Class 5.6% Franklin Gold and Precious Metals Fund - Advisor Class 2.9% Templeton China World Fund - Advisor Class 2.9%
+32.46%, +5.93% and +0.17%, respectively, during the same time.(2) You can find the Fund's long-term performance data in the Performance Summary beginning on page 18. INVESTMENT STRATEGY Whenever possible, we attempt to hold the same underlying Franklin Templeton funds in each Target Fund's portfolio and will vary the underlying funds' allocation percentages based upon each Target Fund's risk/return level. Maintaining similarity of the underlying Franklin Templeton fund investments across the Conservative, Moderate and Growth Target Funds is intended to increase the consistency of their results relative to one another. We allocate the Fund's assets among the broad asset classes, and when selecting equity funds, we consider the underlying funds' foreign and domestic exposure, market capitalization ranges and investment styles (growth versus value). When selecting fixed income funds, we focus primarily on maximizing income appropriate to the Fund's risk profile. MANAGER'S DISCUSSION The Fund's performance can be attributed to its allocation among equities, fixed income securities, and short-term investments and other net assets, and to the actual performance of the selected underlying funds. At period-end, Franklin Templeton Moderate Target Fund's domestic equity exposure was 69.7% of its total equity weighting, with the balance represented (2.) Source: (C) 2009 Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. The S&P 500 consists of 500 stocks chosen for market size, liquidity and industry group representation. Each stock's weight in the index is proportionate to its market value. The S&P 500 is one of the most widely used benchmarks of U.S. equity performance. The MSCI EAFE Index is a free float-adjusted, market capitalization-weighted index designed to measure equity market performance in global developed markets excluding the U.S. and Canada. The BC U.S. Aggregate Index is a market capitalization-weighted index representing the U.S. investment-grade, fixed-rate, taxable bond market with index components for government and corporate, mortgage pass-through and asset-backed securities. All issues included are SEC registered, taxable, dollar denominated and nonconvertible, must have at least one year to final maturity and must be rated investment grade (Baa3/BBB-/BBB- or higher) by Moody's, Standard & Poor's or Fitch, respectively. The P&R 90 Day U.S. T-Bill Index is a total return index based on a constant maturity instrument. Payden & Rygel includes both accrued interest and change in market price in its monthly total return calculations. The value of Treasuries, if held to maturity, is fixed; principal is guaranteed and interest is fixed. The indexes are unmanaged and include reinvested distributions. One cannot invest directly in an index, and an index is not representative of the Fund's portfolio. 16 | Annual Report by foreign equity. The portfolio was diversified across capitalization sizes and investment styles, and on December 31, 2009, we held shares in large-, mid-and small-capitalization equity funds, representing both growth and value styles. Franklin Flex Cap Growth Fund - Advisor Class, representing 14.4% of the Fund's total net assets, was our largest equity fund weighting at period-end. On the fixed income side, domestic exposure was 61.8% of the Fund's total income weighting, with the balance represented by foreign fixed income. Franklin U.S. Government Securities Fund - Advisor Class was our largest fixed income fund weighting at 11.1% of total net assets. Our largest domestic growth fund holding, Franklin Flex Cap Growth Fund - Advisor Class, and our largest domestic value fund holding, Mutual Shares Fund - Class Z, outperformed the S&P 500 during the 12-month reporting period. Our largest foreign equity fund holding, Mutual European Fund - Class Z, under-performed the MSCI EAFE Index; however, Templeton Foreign Fund - Advisor Class outperformed. On the fixed income side, Franklin U.S. Government Securities Fund - Advisor class underperformed the BC U.S. Aggregate Index, while Templeton Global Bond Fund - Advisor Class outperformed. Thank you for your continued participation in Franklin Templeton Moderate Target Fund. We look forward to serving your future investment needs. (PHOTO OF T. ANTHONY COFFEY) /s/ T. Anthony Coffey T. Anthony Coffey, CFA Portfolio Manager Franklin Templeton Moderate Target Fund THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2009, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT OUR MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY. THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY, INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED RELIABLE, BUT THE INVESTMENT MANAGER MAKES NO REPRESENTATION OR WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR INVESTMENT MANAGEMENT PHILOSOPHY. Annual Report | 17 Performance Summary as of 12/31/09 FRANKLIN TEMPLETON MODERATE TARGET FUND Your dividend income will vary depending on dividends or interest paid by securities in the Fund's portfolio, adjusted for operating expenses of each class. Capital gain distributions are net profits realized from the sale of portfolio securities. The performance table and graphs do not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares. Total return reflects reinvestment of the Fund's dividends and capital gain distributions, if any, and any unrealized gains or losses. PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: FMTIX) CHANGE 12/31/09 12/31/08 - ----------------------- ------ -------- -------- Net Asset Value (NAV) +$2.26 $12.93 $10.67 DISTRIBUTIONS (1/1/09-12/31/09) Dividend Income $0.2435 Long-Term Capital Gain $0.0952 TOTAL $0.3387
CLASS B (SYMBOL: FBMTX) CHANGE 12/31/09 12/31/08 - ----------------------- ------ -------- -------- Net Asset Value (NAV) +$2.24 $12.88 $10.64 DISTRIBUTIONS (1/1/09-12/31/09) Dividend Income $0.1563 Long-Term Capital Gain $0.0952 TOTAL $0.2515
CLASS C (SYMBOL: FTMTX) CHANGE 12/31/09 12/31/08 - ----------------------- ------ -------- -------- Net Asset Value (NAV) +$2.21 $12.68 $10.47 DISTRIBUTIONS (1/1/09-12/31/09) Dividend Income $0.1638 Long-Term Capital Gain $0.0952 TOTAL $0.2590
CLASS R (SYMBOL: FTMRX) CHANGE 12/31/09 12/31/08 - ----------------------- ------ -------- -------- Net Asset Value (NAV) +$2.25 $12.89 $10.64 DISTRIBUTIONS (1/1/09-12/31/09) Dividend Income $0.2169 Long-Term Capital Gain $0.0952 TOTAL $0.3121
ADVISOR CLASS (SYMBOL: FMTZX) CHANGE 12/31/09 12/31/08 - ----------------------------- ------ -------- -------- Net Asset Value (NAV) +$2.26 $12.93 $10.67 DISTRIBUTIONS (1/1/09-12/31/09) Dividend Income $0.2715 Long-Term Capital Gain $0.0952 TOTAL $0.3667
18 | Annual Report Performance Summary (CONTINUED) PERFORMANCE(1) CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURN AND VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 5.75% MAXIMUM INITIAL SALES CHARGE; CLASS B: CONTINGENT DEFERRED SALES CHARGE (CDSC) DECLINING FROM 4% TO 1% OVER SIX YEARS, AND ELIMINATED THEREAFTER; CLASS C: 1% CDSC IN FIRST YEAR ONLY; CLASS R/ADVISOR CLASS: NO SALES CHARGES.
CLASS A 1-YEAR 5-YEAR 10-YEAR - ------- ------- ------- ------- Cumulative Total Return(2) +24.68% +27.01% +49.35% Average Annual Total Return(3) +17.52% +3.67% +3.48% Value of $10,000 Investment(4) $11,752 $11,974 $14,072 Total Annual Operating Expenses(5) Without Waiver 1.43% With Waiver 1.23%
INCEPTION CLASS B 1-YEAR 5-YEAR (12/1/03) - ------- ------- ------- --------- Cumulative Total Return(2) +23.65% +22.28% +35.71% Average Annual Total Return(3) +19.65% +3.76% +5.15% Value of $10,000 Investment(4) $11,965 $12,028 $13,571 Total Annual Operating Expenses(5) Without Waiver 2.18% With Waiver 1.98%
CLASS C 1-YEAR 5-YEAR 10-YEAR - ------- ------- ------- ------- Cumulative Total Return(2) +23.82% +22.44% +38.59% Average Annual Total Return(3) +22.82% +4.13% +3.32% Value of $10,000 Investment(4) $12,282 $12,244 $13,859 Total Annual Operating Expenses(5) Without Waiver 2.18% With Waiver 1.98%
INCEPTION CLASS R 1-YEAR 5-YEAR (1/1/02) - ------- ------- ------- --------- Cumulative Total Return(2) +24.37% +25.46% +54.34% Average Annual Total Return(3) +24.37% +4.64% +5.58% Value of $10,000 Investment(4) $12,437 $12,546 $15,434 Total Annual Operating Expenses(5) Without Waiver 1.68% With Waiver 1.48%
ADVISOR CLASS(6) 1-YEAR 5-YEAR 10-YEAR - ---------------- ------- ------- ------- Cumulative Total Return(2) +24.97% +28.35% +50.93% Average Annual Total Return(3) +24.97% +5.12% +4.20% Value of $10,000 Investment(4) $12,497 $12,835 $15,093 Total Annual Operating Expenses(5) Without Waiver 1.18% With Waiver 0.98%
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM FIGURES SHOWN. FOR MOST RECENT MONTH-END PERFORMANCE, GO TO franklintempleton.com OR CALL (800) 342-5236. THE INVESTMENT MANAGER HAS CONTRACTUALLY AGREED TO WAIVE OR LIMIT ITS FEES AND TO ASSUME AS ITS OWN EXPENSE CERTAIN EXPENSES OTHERWISE PAYABLE BY THE FUND SO THAT COMMON EXPENSES (I.E., A COMBINATION OF ASSET ALLOCATION FEES AND OTHER EXPENSES, BUT EXCLUDING RULE 12B-1 FEES AND ACQUIRED FUND FEES AND EXPENSES) FOR EACH CLASS OF THE FUND DO NOT EXCEED 0.25% (OTHER THAN CERTAIN NONROUTINE EXPENSES OR COSTS, INCLUDING THOSE RELATING TO LITIGATION, INDEMNIFICATION, REORGANIZATIONS AND LIQUIDATIONS) UNTIL 4/30/10. Annual Report | 19 Performance Summary (CONTINUED) TOTAL RETURN INDEX COMPARISON FOR A HYPOTHETICAL $10,000 INVESTMENT(1) Total return represents the change in value of an investment over the periods shown. It includes any current, applicable, maximum sales charge, Fund expenses, account fees and reinvested distributions. The unmanaged indexes include reinvestment of any income or distributions. They differ from the Fund in composition and do not pay management fees or expenses. One cannot invest directly in an index. AVERAGE ANNUAL TOTAL RETURN
CLASS A 12/31/09 - ------- -------- 1-Year +17.52% 5-Year +3.67% 10-Year +3.48%
CLASS A (1/1/00-12/31/09) (PERFORMANCE GRAPH)
FRANKLIN TEMPLETON MODERATE BARCLAYS TARGET MSCI CAPITAL U.S. P&R 90-DAY FUND - S&P 500 EAFE AGGREGATE U.S. TREASURY DATE CLASS A INDEX INDEX INDEX BILL INDEX - ---------- --------- ------- -------- ----------- ------------- 1/1/2000 $ 9,422 $10,000 $10,000 $10,000 $10,000 1/31/2000 $ 9,308 $ 9,498 $ 9,366 $ 9,967 $10,039 2/29/2000 $10,342 $ 9,318 $ 9,620 $10,088 $10,084 3/31/2000 $10,136 $10,229 $ 9,995 $10,221 $10,135 4/30/2000 $ 9,647 $ 9,922 $ 9,471 $10,191 $10,186 5/31/2000 $ 9,380 $ 9,718 $ 9,241 $10,187 $10,241 6/30/2000 $ 9,962 $ 9,958 $ 9,605 $10,399 $10,285 7/31/2000 $ 9,862 $ 9,802 $ 9,204 $10,493 $10,333 8/31/2000 $10,408 $10,411 $ 9,286 $10,645 $10,386 9/30/2000 $10,178 $ 9,861 $ 8,836 $10,712 $10,443 10/31/2000 $ 9,806 $ 9,819 $ 8,629 $10,783 $10,496 11/30/2000 $ 9,008 $ 9,045 $ 8,307 $10,959 $10,554 12/31/2000 $ 9,319 $ 9,090 $ 8,604 $11,163 $10,615 1/31/2001 $ 9,653 $ 9,412 $ 8,600 $11,345 $10,684 2/28/2001 $ 9,136 $ 8,554 $ 7,956 $11,444 $10,727 3/31/2001 $ 8,783 $ 8,012 $ 7,429 $11,501 $10,781 4/30/2001 $ 9,221 $ 8,635 $ 7,950 $11,454 $10,825 5/31/2001 $ 9,269 $ 8,692 $ 7,676 $11,523 $10,867 6/30/2001 $ 9,181 $ 8,481 $ 7,365 $11,566 $10,899 7/31/2001 $ 9,068 $ 8,397 $ 7,232 $11,825 $10,935 8/31/2001 $ 8,860 $ 7,872 $ 7,050 $11,960 $10,971 9/30/2001 $ 8,207 $ 7,236 $ 6,337 $12,100 $11,019 10/31/2001 $ 8,497 $ 7,374 $ 6,499 $12,353 $11,048 11/30/2001 $ 8,788 $ 7,940 $ 6,739 $12,183 $11,071 12/31/2001 $ 8,929 $ 8,009 $ 6,780 $12,105 $11,089 1/31/2002 $ 8,896 $ 7,892 $ 6,420 $12,203 $11,104 2/28/2002 $ 8,838 $ 7,740 $ 6,465 $12,322 $11,119 3/31/2002 $ 9,102 $ 8,031 $ 6,818 $12,117 $11,136 4/30/2002 $ 9,077 $ 7,544 $ 6,868 $12,352 $11,153 5/31/2002 $ 9,019 $ 7,489 $ 6,961 $12,457 $11,170 6/30/2002 $ 8,682 $ 6,955 $ 6,686 $12,564 $11,187 7/31/2002 $ 8,190 $ 6,413 $ 6,027 $12,716 $11,202 8/31/2002 $ 8,248 $ 6,455 $ 6,014 $12,931 $11,219 9/30/2002 $ 7,861 $ 5,754 $ 5,370 $13,140 $11,237 10/31/2002 $ 8,096 $ 6,260 $ 5,659 $13,080 $11,254 11/30/2002 $ 8,381 $ 6,629 $ 5,917 $13,077 $11,271 12/31/2002 $ 8,257 $ 6,239 $ 5,718 $13,347 $11,283 1/31/2003 $ 8,198 $ 6,076 $ 5,480 $13,358 $11,296 2/28/2003 $ 8,147 $ 5,985 $ 5,355 $13,543 $11,305 3/31/2003 $ 8,121 $ 6,043 $ 5,253 $13,533 $11,318 4/30/2003 $ 8,503 $ 6,540 $ 5,774 $13,645 $11,329 5/31/2003 $ 8,918 $ 6,885 $ 6,130 $13,899 $11,341 6/30/2003 $ 8,988 $ 6,973 $ 6,281 $13,871 $11,355 7/31/2003 $ 9,048 $ 7,096 $ 6,434 $13,405 $11,363 8/31/2003 $ 9,320 $ 7,234 $ 6,591 $13,494 $11,371 9/30/2003 $ 9,349 $ 7,157 $ 6,795 $13,851 $11,381 10/31/2003 $ 9,674 $ 7,562 $ 7,219 $13,722 $11,390 11/30/2003 $ 9,870 $ 7,629 $ 7,381 $13,755 $11,399 12/31/2003 $10,105 $ 8,029 $ 7,958 $13,895 $11,408 1/31/2004 $10,200 $ 8,176 $ 8,071 $14,007 $11,418 2/29/2004 $10,312 $ 8,290 $ 8,258 $14,158 $11,425 3/31/2004 $10,337 $ 8,165 $ 8,308 $14,264 $11,435 4/30/2004 $10,018 $ 8,037 $ 8,127 $13,893 $11,443 5/31/2004 $10,121 $ 8,147 $ 8,162 $13,838 $11,451 6/30/2004 $10,267 $ 8,305 $ 8,345 $13,916 $11,456 7/31/2004 $10,060 $ 8,030 $ 8,075 $14,054 $11,467 8/31/2004 $10,137 $ 8,063 $ 8,112 $14,322 $11,478 9/30/2004 $10,356 $ 8,150 $ 8,326 $14,361 $11,491 10/31/2004 $10,521 $ 8,275 $ 8,610 $14,481 $11,504 11/30/2004 $10,859 $ 8,610 $ 9,201 $14,366 $11,516 12/31/2004 $11,080 $ 8,902 $ 9,605 $14,498 $11,538 1/31/2005 $10,879 $ 8,685 $ 9,429 $14,589 $11,554 2/28/2005 $11,106 $ 8,868 $ 9,839 $14,503 $11,572 3/31/2005 $10,921 $ 8,711 $ 9,595 $14,428 $11,599 4/30/2005 $10,746 $ 8,546 $ 9,381 $14,624 $11,623 5/31/2005 $10,956 $ 8,818 $ 9,395 $14,782 $11,650 6/30/2005 $11,094 $ 8,830 $ 9,523 $14,862 $11,676 7/31/2005 $11,340 $ 9,159 $ 9,816 $14,727 $11,702 8/31/2005 $11,384 $ 9,075 $10,067 $14,916 $11,734 9/30/2005 $11,498 $ 9,149 $10,517 $14,762 $11,767 10/31/2005 $11,278 $ 8,996 $10,211 $14,645 $11,795 11/30/2005 $11,578 $ 9,337 $10,463 $14,710 $11,834 12/31/2005 $11,738 $ 9,340 $10,951 $14,850 $11,871 1/31/2006 $12,194 $ 9,587 $11,624 $14,851 $11,905 2/28/2006 $12,185 $ 9,613 $11,600 $14,900 $11,943 3/31/2006 $12,372 $ 9,733 $11,988 $14,754 $11,990 4/30/2006 $12,506 $ 9,863 $12,570 $14,727 $12,033 5/31/2006 $12,166 $ 9,580 $12,097 $14,711 $12,080 6/30/2006 $12,188 $ 9,593 $12,101 $14,743 $12,125 7/31/2006 $12,142 $ 9,652 $12,222 $14,942 $12,175 8/31/2006 $12,341 $ 9,881 $12,562 $15,171 $12,228 9/30/2006 $12,389 $10,136 $12,583 $15,304 $12,282 10/31/2006 $12,707 $10,466 $13,074 $15,405 $12,330 11/30/2006 $13,025 $10,665 $13,468 $15,584 $12,382 12/31/2006 $13,096 $10,815 $13,892 $15,493 $12,436 1/31/2007 $13,245 $10,978 $13,987 $15,487 $12,486 2/28/2007 $13,255 $10,764 $14,102 $15,726 $12,535 3/31/2007 $13,419 $10,884 $14,468 $15,726 $12,592 4/30/2007 $13,746 $11,366 $15,124 $15,811 $12,646 5/31/2007 $14,018 $11,763 $15,409 $15,691 $12,703 6/30/2007 $13,966 $11,567 $15,433 $15,645 $12,751 7/31/2007 $13,802 $11,209 $15,207 $15,776 $12,799 8/31/2007 $13,860 $11,377 $14,973 $15,969 $12,872 9/30/2007 $14,401 $11,802 $15,777 $16,090 $12,919 10/31/2007 $14,807 $11,990 $16,399 $16,235 $12,958 11/30/2007 $14,362 $11,489 $15,864 $16,527 $13,017 12/31/2007 $14,326 $11,409 $15,508 $16,573 $13,047 1/31/2008 $13,797 $10,725 $14,077 $16,851 $13,114 2/29/2008 $13,777 $10,376 $14,283 $16,875 $13,136 3/31/2008 $13,623 $10,332 $14,139 $16,932 $13,167 4/30/2008 $14,034 $10,835 $14,925 $16,897 $13,181 5/31/2008 $14,244 $10,975 $15,099 $16,773 $13,187 6/30/2008 $13,582 $10,050 $13,867 $16,759 $13,207 7/31/2008 $13,438 $ 9,965 $13,423 $16,746 $13,233 8/31/2008 $13,469 $10,109 $12,883 $16,905 $13,251 9/30/2008 $12,624 $ 9,209 $11,024 $16,678 $13,287 10/31/2008 $11,262 $ 7,662 $ 8,800 $16,284 $13,308 11/30/2008 $10,939 $ 7,112 $ 8,329 $16,814 $13,322 12/31/2008 $11,287 $ 7,188 $ 8,830 $17,441 $13,320 1/31/2009 $10,959 $ 6,582 $ 7,965 $17,288 $13,319 2/28/2009 $10,430 $ 5,881 $ 7,151 $17,222 $13,321 3/31/2009 $10,977 $ 6,396 $ 7,607 $17,462 $13,325 4/30/2009 $11,710 $ 7,009 $ 8,593 $17,545 $13,329 5/31/2009 $12,221 $ 7,401 $ 9,626 $17,672 $13,330 6/30/2009 $12,215 $ 7,415 $ 9,574 $17,773 $13,331 7/31/2009 $12,870 $ 7,976 $10,449 $18,060 $13,333 8/31/2009 $13,063 $ 8,264 $11,019 $18,247 $13,336 9/30/2009 $13,586 $ 8,573 $11,443 $18,438 $13,338 10/31/2009 $13,435 $ 8,413 $11,300 $18,529 $13,341 11/30/2009 $13,802 $ 8,918 $11,529 $18,769 $13,342 12/31/2009 $14,072 $ 9,090 $11,697 $18,476 $13,342
AVERAGE ANNUAL TOTAL RETURN
CLASS B 12/31/09 - ------- -------- 1-Year +19.65% 5-Year +3.76% Since Inception (12/1/03) +5.15%
CLASS B (12/1/03-12/31/09) (PERFORMANCE GRAPH)
FRANKLIN TEMPLETON MODERATE BARCLAYS TARGET MSCI CAPITAL U.S. P&R 90-DAY FUND - S&P 500 EAFE AGGREGATE U.S. TREASURY DATE CLASS B INDEX INDEX INDEX BILL INDEX - ---------- --------- ------- -------- ----------- ------------- 12/1/2003 $10,000 $10,000 $10,000 $10,000 $10,000 12/31/2003 $10,189 $10,524 $10,782 $10,102 $10,008 1/31/2004 $10,284 $10,718 $10,935 $10,183 $10,016 2/29/2004 $10,389 $10,867 $11,189 $10,293 $10,023 3/31/2004 $10,410 $10,703 $11,257 $10,370 $10,031 4/30/2004 $10,088 $10,535 $11,012 $10,101 $10,038 5/31/2004 $10,184 $10,679 $11,059 $10,060 $10,045 6/30/2004 $10,327 $10,887 $11,306 $10,117 $10,050 7/31/2004 $10,110 $10,527 $10,941 $10,217 $10,059 8/31/2004 $10,188 $10,569 $10,991 $10,412 $10,069 9/30/2004 $10,393 $10,684 $11,280 $10,440 $10,080 10/31/2004 $10,550 $10,847 $11,666 $10,528 $10,092 11/30/2004 $10,890 $11,286 $12,466 $10,444 $10,102 12/31/2004 $11,098 $11,670 $13,013 $10,540 $10,122 1/31/2005 $10,896 $11,385 $12,775 $10,606 $10,136 2/28/2005 $11,115 $11,625 $13,330 $10,544 $10,151 3/31/2005 $10,917 $11,419 $13,001 $10,490 $10,175 4/30/2005 $10,742 $11,202 $12,710 $10,632 $10,196 5/31/2005 $10,944 $11,559 $12,729 $10,747 $10,220 6/30/2005 $11,079 $11,575 $12,903 $10,805 $10,243 7/31/2005 $11,317 $12,006 $13,299 $10,707 $10,265 8/31/2005 $11,352 $11,896 $13,639 $10,844 $10,293 9/30/2005 $11,454 $11,993 $14,250 $10,732 $10,323 10/31/2005 $11,225 $11,793 $13,834 $10,647 $10,347 11/30/2005 $11,516 $12,239 $14,177 $10,695 $10,381 12/31/2005 $11,672 $12,243 $14,837 $10,796 $10,414 1/31/2006 $12,118 $12,567 $15,749 $10,797 $10,443 2/28/2006 $12,100 $12,601 $15,717 $10,833 $10,477 3/31/2006 $12,274 $12,758 $16,243 $10,726 $10,518 4/30/2006 $12,408 $12,929 $17,030 $10,707 $10,555 5/31/2006 $12,060 $12,557 $16,389 $10,695 $10,597 6/30/2006 $12,075 $12,574 $16,395 $10,718 $10,637 7/31/2006 $12,021 $12,652 $16,560 $10,863 $10,680 8/31/2006 $12,209 $12,953 $17,019 $11,029 $10,727 9/30/2006 $12,252 $13,287 $17,049 $11,126 $10,774 10/31/2006 $12,559 $13,720 $17,714 $11,200 $10,816 11/30/2006 $12,856 $13,981 $18,248 $11,330 $10,862 12/31/2006 $12,922 $14,177 $18,822 $11,264 $10,909 1/31/2007 $13,060 $14,391 $18,951 $11,259 $10,953 2/28/2007 $13,070 $14,110 $19,106 $11,433 $10,996 3/31/2007 $13,216 $14,267 $19,603 $11,433 $11,046 4/30/2007 $13,530 $14,899 $20,491 $11,495 $11,094 5/31/2007 $13,789 $15,419 $20,878 $11,408 $11,143 6/30/2007 $13,729 $15,163 $20,910 $11,374 $11,185 7/31/2007 $13,559 $14,693 $20,604 $11,469 $11,228 8/31/2007 $13,606 $14,913 $20,287 $11,610 $11,292 9/30/2007 $14,133 $15,471 $21,376 $11,698 $11,333 10/31/2007 $14,523 $15,717 $22,219 $11,803 $11,367 11/30/2007 $14,076 $15,060 $21,494 $12,015 $11,419 12/31/2007 $14,034 $14,955 $21,011 $12,049 $11,445 1/31/2008 $13,495 $14,058 $19,072 $12,251 $11,504 2/29/2008 $13,475 $13,602 $19,352 $12,268 $11,524 3/31/2008 $13,317 $13,543 $19,157 $12,310 $11,550 4/30/2008 $13,710 $14,203 $20,222 $12,284 $11,562 5/31/2008 $13,907 $14,387 $20,457 $12,194 $11,568 6/30/2008 $13,244 $13,174 $18,788 $12,184 $11,586 7/31/2008 $13,103 $13,063 $18,187 $12,174 $11,609 8/31/2008 $13,123 $13,252 $17,454 $12,290 $11,624 9/30/2008 $12,292 $12,071 $14,937 $12,125 $11,656 10/31/2008 $10,961 $10,044 $11,923 $11,839 $11,674 11/30/2008 $10,636 $ 9,323 $11,285 $12,224 $11,687 12/31/2008 $10,976 $ 9,422 $11,964 $12,680 $11,685 1/31/2009 $10,645 $ 8,628 $10,792 $12,568 $11,684 2/28/2009 $10,130 $ 7,709 $ 9,688 $12,521 $11,685 3/31/2009 $10,644 $ 8,385 $10,307 $12,695 $11,689 4/30/2009 $11,347 $ 9,187 $11,643 $12,756 $11,692 5/31/2009 $11,833 $ 9,701 $13,042 $12,848 $11,694 6/30/2009 $11,826 $ 9,720 $12,971 $12,921 $11,694 7/31/2009 $12,453 $10,456 $14,157 $13,130 $11,696 8/31/2009 $12,630 $10,833 $14,929 $13,266 $11,699 9/30/2009 $13,136 $11,237 $15,504 $13,405 $11,700 10/31/2009 $12,979 $11,029 $15,311 $13,471 $11,703 11/30/2009 $13,325 $11,690 $15,621 $13,645 $11,704 12/31/2009 $13,571 $11,916 $15,848 $13,432 $11,704
20 | Annual Report Performance Summary (CONTINUED) CLASS C (1/1/00-12/31/09) (PERFORMANCE GRAPH)
FRANKLIN TEMPLETON MODERATE BARCLAYS TARGET MSCI CAPITAL U.S. P&R 90-DAY FUND - S&P 500 EAFE AGGREGATE U.S. TREASURY DATE CLASS C INDEX INDEX INDEX BILL INDEX - ---------- --------- ------- -------- ----------- ------------- 1/1/2000 $10,000 $10,000 $10,000 $10,000 $10,000 1/31/2000 $ 9,869 $ 9,498 $ 9,366 $ 9,967 $10,039 2/29/2000 $10,955 $ 9,318 $ 9,620 $10,088 $10,084 3/31/2000 $10,738 $10,229 $ 9,995 $10,221 $10,135 4/30/2000 $10,214 $ 9,922 $ 9,471 $10,191 $10,186 5/31/2000 $ 9,919 $ 9,718 $ 9,241 $10,187 $10,241 6/30/2000 $10,541 $ 9,958 $ 9,605 $10,399 $10,285 7/31/2000 $10,417 $ 9,802 $ 9,204 $10,493 $10,333 8/31/2000 $10,993 $10,411 $ 9,286 $10,645 $10,386 9/30/2000 $10,743 $ 9,861 $ 8,836 $10,712 $10,443 10/31/2000 $10,338 $ 9,819 $ 8,629 $10,783 $10,496 11/30/2000 $ 9,493 $ 9,045 $ 8,307 $10,959 $10,554 12/31/2000 $ 9,817 $ 9,090 $ 8,604 $11,163 $10,615 1/31/2001 $10,164 $ 9,412 $ 8,600 $11,345 $10,684 2/28/2001 $ 9,614 $ 8,554 $ 7,956 $11,444 $10,727 3/31/2001 $ 9,234 $ 8,012 $ 7,429 $11,501 $10,781 4/30/2001 $ 9,692 $ 8,635 $ 7,950 $11,454 $10,825 5/31/2001 $ 9,735 $ 8,692 $ 7,676 $11,523 $10,867 6/30/2001 $ 9,632 $ 8,481 $ 7,365 $11,566 $10,899 7/31/2001 $ 9,513 $ 8,397 $ 7,232 $11,825 $10,935 8/31/2001 $ 9,291 $ 7,872 $ 7,050 $11,960 $10,971 9/30/2001 $ 8,596 $ 7,236 $ 6,337 $12,100 $11,019 10/31/2001 $ 8,896 $ 7,374 $ 6,499 $12,353 $11,048 11/30/2001 $ 9,188 $ 7,940 $ 6,739 $12,183 $11,071 12/31/2001 $ 9,332 $ 8,009 $ 6,780 $12,105 $11,089 1/31/2002 $ 9,288 $ 7,892 $ 6,420 $12,203 $11,104 2/28/2002 $ 9,227 $ 7,740 $ 6,465 $12,322 $11,119 3/31/2002 $ 9,504 $ 8,031 $ 6,818 $12,117 $11,136 4/30/2002 $ 9,469 $ 7,544 $ 6,868 $12,352 $11,153 5/31/2002 $ 9,399 $ 7,489 $ 6,961 $12,457 $11,170 6/30/2002 $ 9,042 $ 6,955 $ 6,686 $12,564 $11,187 7/31/2002 $ 8,532 $ 6,413 $ 6,027 $12,716 $11,202 8/31/2002 $ 8,576 $ 6,455 $ 6,014 $12,931 $11,219 9/30/2002 $ 8,177 $ 5,754 $ 5,370 $13,140 $11,237 10/31/2002 $ 8,407 $ 6,260 $ 5,659 $13,080 $11,254 11/30/2002 $ 8,707 $ 6,629 $ 5,917 $13,077 $11,271 12/31/2002 $ 8,566 $ 6,239 $ 5,718 $13,347 $11,283 1/31/2003 $ 8,495 $ 6,076 $ 5,480 $13,358 $11,296 2/28/2003 $ 8,442 $ 5,985 $ 5,355 $13,543 $11,305 3/31/2003 $ 8,411 $ 6,043 $ 5,253 $13,533 $11,318 4/30/2003 $ 8,794 $ 6,540 $ 5,774 $13,645 $11,329 5/31/2003 $ 9,222 $ 6,885 $ 6,130 $13,899 $11,341 6/30/2003 $ 9,289 $ 6,973 $ 6,281 $13,871 $11,355 7/31/2003 $ 9,342 $ 7,096 $ 6,434 $13,405 $11,363 8/31/2003 $ 9,619 $ 7,234 $ 6,591 $13,494 $11,371 9/30/2003 $ 9,651 $ 7,157 $ 6,795 $13,851 $11,381 10/31/2003 $ 9,972 $ 7,562 $ 7,219 $13,722 $11,390 11/30/2003 $10,169 $ 7,629 $ 7,381 $13,755 $11,399 12/31/2003 $10,410 $ 8,029 $ 7,958 $13,895 $11,408 1/31/2004 $10,500 $ 8,176 $ 8,071 $14,007 $11,418 2/29/2004 $10,607 $ 8,290 $ 8,258 $14,158 $11,425 3/31/2004 $10,621 $ 8,165 $ 8,308 $14,264 $11,435 4/30/2004 $10,297 $ 8,037 $ 8,127 $13,893 $11,443 5/31/2004 $10,387 $ 8,147 $ 8,162 $13,838 $11,451 6/30/2004 $10,538 $ 8,305 $ 8,345 $13,916 $11,456 7/31/2004 $10,313 $ 8,030 $ 8,075 $14,054 $11,467 8/31/2004 $10,385 $ 8,063 $ 8,112 $14,322 $11,478 9/30/2004 $10,603 $ 8,150 $ 8,326 $14,361 $11,491 10/31/2004 $10,765 $ 8,275 $ 8,610 $14,481 $11,504 11/30/2004 $11,108 $ 8,610 $ 9,201 $14,366 $11,516 12/31/2004 $11,319 $ 8,902 $ 9,605 $14,498 $11,538 1/31/2005 $11,110 $ 8,685 $ 9,429 $14,589 $11,554 2/28/2005 $11,337 $ 8,868 $ 9,839 $14,503 $11,572 3/31/2005 $11,141 $ 8,711 $ 9,595 $14,428 $11,599 4/30/2005 $10,960 $ 8,546 $ 9,381 $14,624 $11,623 5/31/2005 $11,168 $ 8,818 $ 9,395 $14,782 $11,650 6/30/2005 $11,299 $ 8,830 $ 9,523 $14,862 $11,676 7/31/2005 $11,545 $ 9,159 $ 9,816 $14,727 $11,702 8/31/2005 $11,581 $ 9,075 $10,067 $14,916 $11,734 9/30/2005 $11,687 $ 9,149 $10,517 $14,762 $11,767 10/31/2005 $11,450 $ 8,996 $10,211 $14,645 $11,795 11/30/2005 $11,750 $ 9,337 $10,463 $14,710 $11,834 12/31/2005 $11,913 $ 9,340 $10,951 $14,850 $11,871 1/31/2006 $12,364 $ 9,587 $11,624 $14,851 $11,905 2/28/2006 $12,346 $ 9,613 $11,600 $14,900 $11,943 3/31/2006 $12,526 $ 9,733 $11,988 $14,754 $11,990 4/30/2006 $12,664 $ 9,863 $12,570 $14,727 $12,033 5/31/2006 $12,305 $ 9,580 $12,097 $14,711 $12,080 6/30/2006 $12,322 $ 9,593 $12,101 $14,743 $12,125 7/31/2006 $12,266 $ 9,652 $12,222 $14,942 $12,175 8/31/2006 $12,461 $ 9,881 $12,562 $15,171 $12,228 9/30/2006 $12,497 $10,136 $12,583 $15,304 $12,282 10/31/2006 $12,814 $10,466 $13,074 $15,405 $12,330 11/30/2006 $13,121 $10,665 $13,468 $15,584 $12,382 12/31/2006 $13,190 $10,815 $13,892 $15,493 $12,436 1/31/2007 $13,333 $10,978 $13,987 $15,487 $12,486 2/28/2007 $13,333 $10,764 $14,102 $15,726 $12,535 3/31/2007 $13,485 $10,884 $14,468 $15,726 $12,592 4/30/2007 $13,810 $11,366 $15,124 $15,811 $12,646 5/31/2007 $14,068 $11,763 $15,409 $15,691 $12,703 6/30/2007 $14,017 $11,567 $15,433 $15,645 $12,751 7/31/2007 $13,841 $11,209 $15,207 $15,776 $12,799 8/31/2007 $13,880 $11,377 $14,973 $15,969 $12,872 9/30/2007 $14,416 $11,802 $15,777 $16,090 $12,919 10/31/2007 $14,820 $11,990 $16,399 $16,235 $12,958 11/30/2007 $14,366 $11,489 $15,864 $16,527 $13,017 12/31/2007 $14,325 $11,409 $15,508 $16,573 $13,047 1/31/2008 $13,777 $10,725 $14,077 $16,851 $13,114 2/29/2008 $13,756 $10,376 $14,283 $16,875 $13,136 3/31/2008 $13,583 $10,332 $14,139 $16,932 $13,167 4/30/2008 $13,990 $10,835 $14,925 $16,897 $13,181 5/31/2008 $14,194 $10,975 $15,099 $16,773 $13,187 6/30/2008 $13,520 $10,050 $13,867 $16,759 $13,207 7/31/2008 $13,373 $ 9,965 $13,423 $16,746 $13,233 8/31/2008 $13,394 $10,109 $12,883 $16,905 $13,251 9/30/2008 $12,545 $ 9,209 $11,024 $16,678 $13,287 10/31/2008 $11,187 $ 7,662 $ 8,800 $16,284 $13,308 11/30/2008 $10,850 $ 7,112 $ 8,329 $16,814 $13,322 12/31/2008 $11,192 $ 7,188 $ 8,830 $17,441 $13,320 1/31/2009 $10,861 $ 6,582 $ 7,965 $17,288 $13,319 2/28/2009 $10,337 $ 5,881 $ 7,151 $17,222 $13,321 3/31/2009 $10,860 $ 6,396 $ 7,607 $17,462 $13,325 4/30/2009 $11,579 $ 7,009 $ 8,593 $17,545 $13,329 5/31/2009 $12,083 $ 7,401 $ 9,626 $17,672 $13,330 6/30/2009 $12,078 $ 7,415 $ 9,574 $17,773 $13,331 7/31/2009 $12,705 $ 7,976 $10,449 $18,060 $13,333 8/31/2009 $12,889 $ 8,264 $11,019 $18,247 $13,336 9/30/2009 $13,405 $ 8,573 $11,443 $18,438 $13,338 10/31/2009 $13,242 $ 8,413 $11,300 $18,529 $13,341 11/30/2009 $13,590 $ 8,918 $11,529 $18,769 $13,342 12/31/2009 $13,859 $ 9,090 $11,697 $18,476 $13,342
AVERAGE ANNUAL TOTAL RETURN
CLASS C 12/31/09 - ------- -------- 1-Year +22.82% 5-Year +4.13% 10-Year +3.32%
CLASS R (1/1/02-12/31/09) (PERFORMANCE GRAPH)
FRANKLIN TEMPLETON MODERATE BARCLAYS TARGET MSCI CAPITAL U.S. P&R 90-DAY FUND - S&P 500 EAFE AGGREGATE U.S. TREASURY DATE CLASS R INDEX INDEX INDEX BILL INDEX - ---------- --------- ------- -------- ----------- ------------- 1/1/2002 $10,000 $10,000 $10,000 $10,000 $10,000 1/31/2002 $ 9,954 $ 9,854 $ 9,469 $10,081 $10,014 2/28/2002 $ 9,889 $ 9,664 $ 9,536 $10,179 $10,027 3/31/2002 $10,182 $10,027 $10,057 $10,009 $10,042 4/30/2002 $10,154 $ 9,420 $10,130 $10,204 $10,057 5/31/2002 $10,089 $ 9,350 $10,267 $10,290 $10,073 6/30/2002 $ 9,703 $ 8,684 $ 9,862 $10,379 $10,088 7/31/2002 $ 9,162 $ 8,007 $ 8,889 $10,505 $10,102 8/31/2002 $ 9,218 $ 8,060 $ 8,871 $10,682 $10,117 9/30/2002 $ 8,787 $ 7,184 $ 7,921 $10,855 $10,133 10/31/2002 $ 9,040 $ 7,816 $ 8,347 $10,806 $10,149 11/30/2002 $ 9,360 $ 8,276 $ 8,727 $10,803 $10,165 12/31/2002 $ 9,212 $ 7,790 $ 8,434 $11,026 $10,175 1/31/2003 $ 9,146 $ 7,586 $ 8,083 $11,035 $10,186 2/28/2003 $ 9,089 $ 7,472 $ 7,898 $11,188 $10,195 3/31/2003 $ 9,066 $ 7,545 $ 7,749 $11,179 $10,207 4/30/2003 $ 9,483 $ 8,166 $ 8,517 $11,272 $10,217 5/31/2003 $ 9,948 $ 8,596 $ 9,041 $11,482 $10,227 6/30/2003 $10,021 $ 8,706 $ 9,265 $11,459 $10,240 7/31/2003 $10,088 $ 8,859 $ 9,491 $11,074 $10,247 8/31/2003 $10,383 $ 9,032 $ 9,721 $11,147 $10,255 9/30/2003 $10,420 $ 8,936 $10,023 $11,442 $10,263 10/31/2003 $10,772 $ 9,442 $10,648 $11,336 $10,272 11/30/2003 $10,991 $ 9,525 $10,887 $11,363 $10,280 12/31/2003 $11,256 $10,024 $11,738 $11,478 $10,288 1/31/2004 $11,361 $10,208 $11,904 $11,571 $10,297 2/29/2004 $11,477 $10,350 $12,181 $11,696 $10,303 3/31/2004 $11,500 $10,194 $12,255 $11,784 $10,312 4/30/2004 $11,153 $10,034 $11,988 $11,477 $10,319 5/31/2004 $11,259 $10,172 $12,040 $11,431 $10,326 6/30/2004 $11,424 $10,370 $12,308 $11,496 $10,331 7/31/2004 $11,193 $10,026 $11,911 $11,610 $10,341 8/31/2004 $11,270 $10,067 $11,966 $11,831 $10,351 9/30/2004 $11,507 $10,176 $12,280 $11,863 $10,363 10/31/2004 $11,690 $10,332 $12,700 $11,963 $10,375 11/30/2004 $12,067 $10,750 $13,571 $11,867 $10,385 12/31/2004 $12,303 $11,115 $14,167 $11,976 $10,405 1/31/2005 $12,079 $10,844 $13,908 $12,052 $10,420 2/28/2005 $12,332 $11,073 $14,512 $11,981 $10,436 3/31/2005 $12,122 $10,877 $14,153 $11,919 $10,460 4/30/2005 $11,927 $10,670 $13,837 $12,080 $10,482 5/31/2005 $12,161 $11,010 $13,858 $12,211 $10,506 6/30/2005 $12,317 $11,025 $14,047 $12,278 $10,530 7/31/2005 $12,581 $11,435 $14,479 $12,166 $10,553 8/31/2005 $12,630 $11,331 $14,849 $12,322 $10,582 9/30/2005 $12,748 $11,423 $15,513 $12,195 $10,612 10/31/2005 $12,504 $11,232 $15,061 $12,098 $10,636 11/30/2005 $12,836 $11,657 $15,433 $12,152 $10,672 12/31/2005 $13,007 $11,661 $16,153 $12,267 $10,705 1/31/2006 $13,513 $11,970 $17,145 $12,268 $10,736 2/28/2006 $13,503 $12,003 $17,110 $12,309 $10,770 3/31/2006 $13,700 $12,152 $17,683 $12,188 $10,812 4/30/2006 $13,849 $12,315 $18,540 $12,166 $10,851 5/31/2006 $13,472 $11,961 $17,843 $12,153 $10,893 6/30/2006 $13,496 $11,977 $17,849 $12,179 $10,934 7/31/2006 $13,436 $12,051 $18,028 $12,343 $10,979 8/31/2006 $13,657 $12,338 $18,528 $12,532 $11,028 9/30/2006 $13,702 $12,655 $18,561 $12,642 $11,076 10/31/2006 $14,053 $13,068 $19,284 $12,726 $11,119 11/30/2006 $14,396 $13,316 $19,866 $12,874 $11,166 12/31/2006 $14,473 $13,503 $20,491 $12,799 $11,215 1/31/2007 $14,639 $13,707 $20,631 $12,794 $11,260 2/28/2007 $14,649 $13,439 $20,800 $12,991 $11,304 3/31/2007 $14,826 $13,590 $21,340 $12,991 $11,355 4/30/2007 $15,178 $14,192 $22,308 $13,061 $11,404 5/31/2007 $15,478 $14,687 $22,729 $12,962 $11,455 6/30/2007 $15,421 $14,443 $22,764 $12,924 $11,499 7/31/2007 $15,240 $13,995 $22,431 $13,032 $11,542 8/31/2007 $15,293 $14,205 $22,086 $13,192 $11,608 9/30/2007 $15,894 $14,736 $23,272 $13,292 $11,650 10/31/2007 $16,343 $14,970 $24,189 $13,411 $11,686 11/30/2007 $15,840 $14,345 $23,399 $13,652 $11,738 12/31/2007 $15,799 $14,245 $22,874 $13,691 $11,766 1/31/2008 $15,203 $13,391 $20,763 $13,921 $11,826 2/29/2008 $15,192 $12,956 $21,067 $13,940 $11,846 3/31/2008 $15,004 $12,900 $20,856 $13,987 $11,874 4/30/2008 $15,458 $13,528 $22,015 $13,958 $11,886 5/31/2008 $15,691 $13,703 $22,271 $13,856 $11,892 6/30/2008 $14,948 $12,548 $20,454 $13,845 $11,910 7/31/2008 $14,789 $12,442 $19,799 $13,833 $11,934 8/31/2008 $14,823 $12,622 $19,002 $13,965 $11,950 9/30/2008 $13,893 $11,498 $16,261 $13,777 $11,983 10/31/2008 $12,390 $ 9,567 $12,981 $13,452 $12,001 11/30/2008 $12,034 $ 8,880 $12,285 $13,890 $12,014 12/31/2008 $12,410 $ 8,975 $13,025 $14,408 $12,012 1/31/2009 $12,048 $ 8,218 $11,749 $14,281 $12,011 2/28/2009 $11,466 $ 7,343 $10,547 $14,227 $12,013 3/31/2009 $12,061 $ 7,986 $11,221 $14,425 $12,016 4/30/2009 $12,869 $ 8,751 $12,675 $14,494 $12,020 5/31/2009 $13,420 $ 9,240 $14,198 $14,599 $12,021 6/30/2009 $13,417 $ 9,259 $14,121 $14,682 $12,022 7/31/2009 $14,127 $ 9,959 $15,413 $14,919 $12,024 8/31/2009 $14,340 $10,318 $16,253 $15,073 $12,026 9/30/2009 $14,920 $10,703 $16,878 $15,232 $12,028 10/31/2009 $14,754 $10,505 $16,668 $15,307 $12,031 11/30/2009 $15,145 $11,135 $17,006 $15,505 $12,031 12/31/2009 $15,434 $11,350 $17,253 $15,263 $12,032
AVERAGE ANNUAL TOTAL RETURN
CLASS R 12/31/09 - ------- -------- 1-Year +24.37% 5-Year +4.64% Since Inception (1/1/02) +5.58%
Annual Report | 21 Performance Summary (CONTINUED) AVERAGE ANNUAL TOTAL RETURN
ADVISOR CLASS(6) 12/31/09 - ---------------- -------- 1-Year +24.97% 5-Year +5.12% 10-Year +4.20%
ADVISOR CLASS (1/1/00-12/31/09)(6) (PERFORMANCE GRAPH)
FRANKLIN TEMPLETON MODERATE TARGET BARCLAYS FUND - MSCI CAPITAL U.S. P&R 90-DAY ADVISOR S&P 500 EAFE AGGREGATE U.S. TREASURY DATE CLASS INDEX INDEX INDEX BILL INDEX - ---------- --------- ------- -------- ----------- ------------- 1/1/2000 $10,000 $10,000 $10,000 $10,000 $10,000 1/31/2000 $ 9,879 $ 9,498 $ 9,366 $ 9,967 $10,039 2/29/2000 $10,977 $ 9,318 $ 9,620 $10,088 $10,084 3/31/2000 $10,758 $10,229 $ 9,995 $10,221 $10,135 4/30/2000 $10,239 $ 9,922 $ 9,471 $10,191 $10,186 5/31/2000 $ 9,955 $ 9,718 $ 9,241 $10,187 $10,241 6/30/2000 $10,573 $ 9,958 $ 9,605 $10,399 $10,285 7/31/2000 $10,467 $ 9,802 $ 9,204 $10,493 $10,333 8/31/2000 $11,046 $10,411 $ 9,286 $10,645 $10,386 9/30/2000 $10,802 $ 9,861 $ 8,836 $10,712 $10,443 10/31/2000 $10,408 $ 9,819 $ 8,629 $10,783 $10,496 11/30/2000 $ 9,561 $ 9,045 $ 8,307 $10,959 $10,554 12/31/2000 $ 9,891 $ 9,090 $ 8,604 $11,163 $10,615 1/31/2001 $10,245 $ 9,412 $ 8,600 $11,345 $10,684 2/28/2001 $ 9,697 $ 8,554 $ 7,956 $11,444 $10,727 3/31/2001 $ 9,321 $ 8,012 $ 7,429 $11,501 $10,781 4/30/2001 $ 9,787 $ 8,635 $ 7,950 $11,454 $10,825 5/31/2001 $ 9,838 $ 8,692 $ 7,676 $11,523 $10,867 6/30/2001 $ 9,744 $ 8,481 $ 7,365 $11,566 $10,899 7/31/2001 $ 9,625 $ 8,397 $ 7,232 $11,825 $10,935 8/31/2001 $ 9,403 $ 7,872 $ 7,050 $11,960 $10,971 9/30/2001 $ 8,710 $ 7,236 $ 6,337 $12,100 $11,019 10/31/2001 $ 9,019 $ 7,374 $ 6,499 $12,353 $11,048 11/30/2001 $ 9,327 $ 7,940 $ 6,739 $12,183 $11,071 12/31/2001 $ 9,477 $ 8,009 $ 6,780 $12,105 $11,089 1/31/2002 $ 9,442 $ 7,892 $ 6,420 $12,203 $11,104 2/28/2002 $ 9,380 $ 7,740 $ 6,465 $12,322 $11,119 3/31/2002 $ 9,660 $ 8,031 $ 6,818 $12,117 $11,136 4/30/2002 $ 9,634 $ 7,544 $ 6,868 $12,352 $11,153 5/31/2002 $ 9,572 $ 7,489 $ 6,961 $12,457 $11,170 6/30/2002 $ 9,214 $ 6,955 $ 6,686 $12,564 $11,187 7/31/2002 $ 8,692 $ 6,413 $ 6,027 $12,716 $11,202 8/31/2002 $ 8,754 $ 6,455 $ 6,014 $12,931 $11,219 9/30/2002 $ 8,343 $ 5,754 $ 5,370 $13,140 $11,237 10/31/2002 $ 8,592 $ 6,260 $ 5,659 $13,080 $11,254 11/30/2002 $ 8,895 $ 6,629 $ 5,917 $13,077 $11,271 12/31/2002 $ 8,764 $ 6,239 $ 5,718 $13,347 $11,283 1/31/2003 $ 8,701 $ 6,076 $ 5,480 $13,358 $11,296 2/28/2003 $ 8,647 $ 5,985 $ 5,355 $13,543 $11,305 3/31/2003 $ 8,619 $ 6,043 $ 5,253 $13,533 $11,318 4/30/2003 $ 9,024 $ 6,540 $ 5,774 $13,645 $11,329 5/31/2003 $ 9,465 $ 6,885 $ 6,130 $13,899 $11,341 6/30/2003 $ 9,539 $ 6,973 $ 6,281 $13,871 $11,355 7/31/2003 $ 9,603 $ 7,096 $ 6,434 $13,405 $11,363 8/31/2003 $ 9,891 $ 7,234 $ 6,591 $13,494 $11,371 9/30/2003 $ 9,923 $ 7,157 $ 6,795 $13,851 $11,381 10/31/2003 $10,267 $ 7,562 $ 7,219 $13,722 $11,390 11/30/2003 $10,475 $ 7,629 $ 7,381 $13,755 $11,399 12/31/2003 $10,725 $ 8,029 $ 7,958 $13,895 $11,408 1/31/2004 $10,826 $ 8,176 $ 8,071 $14,007 $11,418 2/29/2004 $10,944 $ 8,290 $ 8,258 $14,158 $11,425 3/31/2004 $10,971 $ 8,165 $ 8,308 $14,264 $11,435 4/30/2004 $10,632 $ 8,037 $ 8,127 $13,893 $11,443 5/31/2004 $10,742 $ 8,147 $ 8,162 $13,838 $11,451 6/30/2004 $10,897 $ 8,305 $ 8,345 $13,916 $11,456 7/31/2004 $10,677 $ 8,030 $ 8,075 $14,054 $11,467 8/31/2004 $10,759 $ 8,063 $ 8,112 $14,322 $11,478 9/30/2004 $10,992 $ 8,150 $ 8,326 $14,361 $11,491 10/31/2004 $11,166 $ 8,275 $ 8,610 $14,481 $11,504 11/30/2004 $11,525 $ 8,610 $ 9,201 $14,366 $11,516 12/31/2004 $11,759 $ 8,902 $ 9,605 $14,498 $11,538 1/31/2005 $11,546 $ 8,685 $ 9,429 $14,589 $11,554 2/28/2005 $11,787 $ 8,868 $ 9,839 $14,503 $11,572 3/31/2005 $11,591 $ 8,711 $ 9,595 $14,428 $11,599 4/30/2005 $11,405 $ 8,546 $ 9,381 $14,624 $11,623 5/31/2005 $11,628 $ 8,818 $ 9,395 $14,782 $11,650 6/30/2005 $11,775 $ 8,830 $ 9,523 $14,862 $11,676 7/31/2005 $12,036 $ 9,159 $ 9,816 $14,727 $11,702 8/31/2005 $12,082 $ 9,075 $10,067 $14,916 $11,734 9/30/2005 $12,204 $ 9,149 $10,517 $14,762 $11,767 10/31/2005 $11,970 $ 8,996 $10,211 $14,645 $11,795 11/30/2005 $12,288 $ 9,337 $10,463 $14,710 $11,834 12/31/2005 $12,465 $ 9,340 $10,951 $14,850 $11,871 1/31/2006 $12,959 $ 9,587 $11,624 $14,851 $11,905 2/28/2006 $12,949 $ 9,613 $11,600 $14,900 $11,943 3/31/2006 $13,147 $ 9,733 $11,988 $14,754 $11,990 4/30/2006 $13,299 $ 9,863 $12,570 $14,727 $12,033 5/31/2006 $12,937 $ 9,580 $12,097 $14,711 $12,080 6/30/2006 $12,969 $ 9,593 $12,101 $14,743 $12,125 7/31/2006 $12,921 $ 9,652 $12,222 $14,942 $12,175 8/31/2006 $13,132 $ 9,881 $12,562 $15,171 $12,228 9/30/2006 $13,181 $10,136 $12,583 $15,304 $12,282 10/31/2006 $13,529 $10,466 $13,074 $15,405 $12,330 11/30/2006 $13,868 $10,665 $13,468 $15,584 $12,382 12/31/2006 $13,945 $10,815 $13,892 $15,493 $12,436 1/31/2007 $14,114 $10,978 $13,987 $15,487 $12,486 2/28/2007 $14,124 $10,764 $14,102 $15,726 $12,535 3/31/2007 $14,294 $10,884 $14,468 $15,726 $12,592 4/30/2007 $14,643 $11,366 $15,124 $15,811 $12,646 5/31/2007 $14,943 $11,763 $15,409 $15,691 $12,703 6/30/2007 $14,896 $11,567 $15,433 $15,645 $12,751 7/31/2007 $14,722 $11,209 $15,207 $15,776 $12,799 8/31/2007 $14,773 $11,377 $14,973 $15,969 $12,872 9/30/2007 $15,359 $11,802 $15,777 $16,090 $12,919 10/31/2007 $15,803 $11,990 $16,399 $16,235 $12,958 11/30/2007 $15,328 $11,489 $15,864 $16,527 $13,017 12/31/2007 $15,292 $11,409 $15,508 $16,573 $13,047 1/31/2008 $14,727 $10,725 $14,077 $16,851 $13,114 2/29/2008 $14,717 $10,376 $14,283 $16,875 $13,136 3/31/2008 $14,547 $10,332 $14,139 $16,932 $13,167 4/30/2008 $14,996 $10,835 $14,925 $16,897 $13,181 5/31/2008 $15,221 $10,975 $15,099 $16,773 $13,187 6/30/2008 $14,515 $10,050 $13,867 $16,759 $13,207 7/31/2008 $14,361 $ 9,965 $13,423 $16,746 $13,233 8/31/2008 $14,405 $10,109 $12,883 $16,905 $13,251 9/30/2008 $13,500 $ 9,209 $11,024 $16,678 $13,287 10/31/2008 $12,043 $ 7,662 $ 8,800 $16,284 $13,308 11/30/2008 $11,698 $ 7,112 $ 8,329 $16,814 $13,322 12/31/2008 $12,077 $ 7,188 $ 8,830 $17,441 $13,320 1/31/2009 $11,726 $ 6,582 $ 7,965 $17,288 $13,319 2/28/2009 $11,172 $ 5,881 $ 7,151 $17,222 $13,321 3/31/2009 $11,753 $ 6,396 $ 7,607 $17,462 $13,325 4/30/2009 $12,538 $ 7,009 $ 8,593 $17,545 $13,329 5/31/2009 $13,084 $ 7,401 $ 9,626 $17,672 $13,330 6/30/2009 $13,086 $ 7,415 $ 9,574 $17,773 $13,331 7/31/2009 $13,788 $ 7,976 $10,449 $18,060 $13,333 8/31/2009 $14,006 $ 8,264 $11,019 $18,247 $13,336 9/30/2009 $14,562 $ 8,573 $11,443 $18,438 $13,338 10/31/2009 $14,412 $ 8,413 $11,300 $18,529 $13,341 11/30/2009 $14,794 $ 8,918 $11,529 $18,769 $13,342 12/31/2009 $15,093 $ 9,090 $11,697 $18,476 $13,342
ENDNOTES WHILE AN ASSET ALLOCATION PLAN CAN BE A VALUABLE TOOL TO HELP REDUCE OVERALL VOLATILITY, ALL INVESTMENTS INVOLVE SOME DEGREE OF RISK. TYPICALLY, THE MORE AGGRESSIVE THE INVESTMENT, OR THE GREATER THE POTENTIAL RETURN, THE MORE RISK INVOLVED. GENERALLY, INVESTORS SHOULD BE COMFORTABLE WITH SOME FLUCTUATION IN THE VALUE OF THEIR INVESTMENTS, ESPECIALLY OVER THE SHORT TERM. STOCKS HAVE HISTORICALLY OUTPERFORMED OTHER ASSET CLASSES OVER THE LONG TERM, BUT THEY TEND TO FLUCTUATE MORE DRAMATICALLY OVER THE SHORTER TERM. BOND PRICES GENERALLY MOVE IN THE OPPOSITE DIRECTION OF INTEREST RATES. THUS, AS PRICES OF BONDS IN A FUND ADJUST TO A RISE IN INTEREST RATES, THAT FUND'S SHARE PRICE MAY DECLINE. BECAUSE THIS FUND INVESTS IN UNDERLYING FUNDS, WHICH MAY ENGAGE IN A VARIETY OF INVESTMENT STRATEGIES INVOLVING CERTAIN RISKS, THE FUND MAY BE SUBJECT TO THOSE SAME RISKS. THESE RISKS ARE DESCRIBED IN THE FUND'S PROSPECTUS. CLASS B: These shares have higher annual fees and expenses than Class A shares. CLASS C: Prior to 1/1/04, these shares were offered with an initial sales charge; thus actual total returns would have differed. These shares have higher annual fees and expenses than Class A shares. CLASS R: Shares are available to certain eligible investors as described in the prospectus. These shares have higher annual fees and expenses than Class A shares. ADVISOR CLASS: Shares are available to certain eligible investors as described in the prospectus. (1.) If the manager had not waived fees, the Fund's total returns would have been lower. (2.) Cumulative total return represents the change in value of an investment over the periods indicated. (3.) Average annual total return represents the average annual change in value of an investment over the periods indicated. (4.) These figures represent the value of a hypothetical $10,000 investment in the Fund over the periods indicated. (5.) Figures are as stated in the Fund's prospectus current as of the date of this report. In periods of market volatility, assets may decline significantly, causing total annual fund operating expenses to become higher than the figures shown. (6.) Effective 12/1/05, the Fund began offering Advisor Class shares, which do not have sales charges or a Rule 12b-1 plan. Performance quotations for this class reflect the following methods of calculation: (a) For periods prior to 12/1/05, a restated figure is used based upon the Fund's Class A performance, excluding the effect of Class A's maximum initial sales charge, but reflecting the effect of the Class A Rule 12b-1 fees; and (b) for periods after 11/30/05, actual Advisor Class performance is used reflecting all charges and fees applicable to that class. Since 12/1/05 (commencement of sales), the cumulative and average annual total returns of Advisor Class shares were +21.90% and +4.97%. (7.) Source: (C) 2009 Morningstar. See page 16 for descriptions of the S&P 500, the MSCI EAFE Index, the BC U.S. Aggregate Index and the P&R 90 Day U.S. T-Bill Index. 22 | Annual Report Your Fund's Expenses FRANKLIN TEMPLETON MODERATE TARGET FUND As a Fund shareholder, you can incur two types of costs: - - Transaction costs, including sales charges (loads) on Fund purchases; and - - Ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses. The following table shows ongoing costs of investing in the Fund and can help you understand these costs and compare them with those of other mutual funds. The table assumes a $1,000 investment held for the six months indicated. ACTUAL FUND EXPENSES The first line (Actual) for each share class listed in the table provides actual account values and expenses. The "Ending Account Value" is derived from the Fund's actual return, which includes the effect of Fund expenses. You can estimate the expenses you paid during the period by following these steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS ILLUSTRATION: 1. Divide your account value by $1,000. IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6. 2. Multiply the result by the number under the heading "Expenses Paid During Period." IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50. In this illustration, the estimated expenses paid this period are $64.50. HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS Information in the second line (Hypothetical) for each class in the table can help you compare ongoing costs of investing in the Fund with those of other mutual funds. This information may not be used to estimate the actual ending account balance or expenses you paid during the period. The hypothetical "Ending Account Value" is based on the actual expense ratio for each class and an assumed 5% annual rate of return before expenses, which does not represent the Fund's actual return. The figure under the heading "Expenses Paid During Period" shows the hypothetical expenses your account would have incurred under this scenario. You can compare this figure with the 5% hypothetical examples that appear in shareholder reports of other funds. Annual Report | 23 Your Fund's Expenses (CONTINUED) PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES. Therefore, the second line for each class is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transaction costs were included, your total costs would have been higher. Please refer to the Fund prospectus for additional information on operating expenses.
BEGINNING ENDING EXPENSES PAID EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* DURING PERIOD** 7/1/09 12/31/09 7/1/09-12/31/09 7/1/09-12/31/09 ------------- ------------- --------------- --------------- CLASS A Actual $1,000 $1,152.10 $2.71 $ 6.94 Hypothetical (5% return before expenses) $1,000 $1,022.68 $2.55 $ 6.51 CLASS B Actual $1,000 $1,147.50 $6.71 $10.93 Hypothetical (5% return before expenses) $1,000 $1,018.95 $6.31 $10.26 CLASS C Actual $1,000 $1,147.50 $6.77 $10.99 Hypothetical (5% return before expenses) $1,000 $1,018.90 $6.36 $10.31 CLASS R Actual $1,000 $1,150.40 $4.07 $ 8.29 Hypothetical (5% return before expenses) $1,000 $1,021.42 $3.82 $ 7.78 ADVISOR CLASS Actual $1,000 $1,153.40 $1.36 $ 5.59 Hypothetical (5% return before expenses) $1,000 $1,023.95 $1.28 $ 5.24
* Expenses are calculated using the most recent six-month expense ratio excluding expenses of the underlying funds, net of expense waivers, annualized for each class (A: 0.50%; B: 1.24%; C: 1.25%; R: 0.75%; and Advisor: 0.25%), multiplied by the average account value over the period, multiplied by 184/365 to reflect the one-half year period. A portion of the Fund's expenses have been paid by the underlying funds in which the Fund invests. ** Expenses are calculated using the most recent six-month expense ratio including expenses of the underlying funds, net of expense waivers, annualized for each class (A: 1.28%; B: 2.02%; C: 2.03%; R: 1.53%; and Advisor: 1.03%), multiplied by the average account value over the period, multiplied by 184/365 to reflect the one-half year period. A portion of the Fund's expenses have been paid by the underlying funds in which the Fund invests. 24 | Annual Report Franklin Templeton Growth Target Fund YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Templeton Growth Target Fund seeks the highest level of long-term total return consistent with a higher level of risk.(1) PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM FIGURES SHOWN. PLEASE VISIT franklintempleton.com OR CALL (800) 342-5236 FOR MOST RECENT MONTH-END PERFORMANCE. ASSET ALLOCATION* Franklin Templeton Growth Target Fund Based on Total Net Assets as of 12/31/09 (PIE CHART) Domestic Equity............................. 56.9% Foreign Equity.............................. 24.7% Domestic Fixed Income....................... 8.4% Foreign Fixed Income........................ 5.4% Short-Term Investments & Other Net Assets... 4.6%
* The asset allocation is based on the Statement of Investments (SOI), which classifies each underlying fund into a broad asset class. PERFORMANCE OVERVIEW Franklin Templeton Growth Target Fund - Class A delivered a +31.08% cumulative total return for the 12 months under review. By comparison the Fund's benchmarks, the Standard & Poor's 500 Index (S&P 500) and Morgan Stanley Capital International (MSCI) Europe, Australasia, Far East (EAFE) Index for equities, the Barclays Capital (BC) U.S. Aggregate Index for fixed income, and the Payden & Rygel (P&R) 90 Day U.S. T-Bill Index for short-term investments (1.) The risk/reward potential is based on the Fund's goal and level of risk. It is not indicative of the Fund's actual or implied performance or portfolio composition, which may change on a continuous basis. THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S SOI, WHICH BEGINS ON PAGE 52. Annual Report | 25 TOP 10 FUND HOLDINGS Franklin Templeton Growth Target Fund 12/31/09
% OF TOTAL NET ASSETS ---------- Franklin Flex Cap Growth Fund - - Advisor Class 20.2% Mutual Shares Fund - Class Z 14.2% Franklin Growth Opportunities Fund - - Advisor Class 8.7% Mutual European Fund - Class Z 8.5% Templeton Foreign Fund - - Advisor Class 7.7% Templeton Global Bond Fund - - Advisor Class 4.7% Franklin U.S. Government Securities Fund - Advisor Class 4.6% Franklin Gold and Precious Metals Fund - - Advisor Class 4.5% Templeton China World Fund - - Advisor Class 3.9% Franklin Total Return Fund - - Advisor Class 3.8%
and other net assets, posted total returns of +26.46%, +32.46%, +5.93% and +0.17%, respectively, during the same time.(2) You can find the Fund's long-term performance data in the Performance Summary beginning on page 28. INVESTMENT STRATEGY Whenever possible, we attempt to hold the same underlying Franklin Templeton funds in each Target Fund's portfolio and will vary the underlying funds' allocation percentages based upon each Target Fund's risk/return level. Maintaining similarity of the underlying Franklin Templeton fund investments across the Conservative, Moderate and Growth Target Funds is intended to increase the consistency of their results relative to one another. We allocate the Fund's assets among the broad asset classes, and when selecting equity funds, we consider the underlying funds' foreign and domestic exposure, market capitalization ranges and investment styles (growth versus value). When selecting fixed income funds, we focus primarily on maximizing income appropriate to the Fund's risk profile. MANAGER'S DISCUSSION The Fund's performance can be attributed to its allocation among equities, fixed income securities, and short-term investments and other net assets, and by the actual performance of the selected underlying funds. At period-end, Franklin Templeton Growth Target Fund's domestic equity exposure was 69.7% of its total equity weighting, with the balance represented by foreign equity. The portfolio was diversified across capitalization sizes and investment styles, and on December 31, 2009, we held shares in large-, mid-and small-capitalization equity funds, representing both growth and value (2.) Source: (C) 2009 Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. The S&P 500 consists of 500 stocks chosen for market size, liquidity and industry group representation. Each stock's weight in the index is proportionate to its market value. The S&P 500 is one of the most widely used benchmarks of U.S. equity performance. The MSCI EAFE Index is a free float-adjusted, market capitalization-weighted index designed to measure equity market performance in global developed markets excluding the U.S. and Canada. The BC U.S. Aggregate Index is a market capitalization-weighted index representing the U.S. investment-grade, fixed-rate, taxable bond market with index components for government and corporate, mortgage pass-through and asset-backed securities. All issues included are SEC registered, taxable, dollar denominated and nonconvertible, must have at least one year to final maturity and must be rated investment grade (Baa3/BBB-/BBB- or higher) by Moody's, Standard & Poor's or Fitch, respectively. The P&R 90 Day U.S. T-Bill Index is a total return index based on a constant maturity instrument. Payden & Rygel includes both accrued interest and change in market price in its monthly total return calculations. The value of Treasuries, if held to maturity, is fixed; principal is guaranteed and interest is fixed. The indexes are unmanaged and include reinvested distributions. One cannot invest directly in an index, and an index is not representative of the Fund's portfolio. 26 | Annual Report styles. Franklin Flex Cap Growth Fund - Advisor Class, representing 20.2% of the Fund's total net assets, was our largest equity fund weighting at period-end. On the fixed income side, domestic exposure was 60.9% of the Fund's total income weighting, with the balance represented by foreign fixed income. Templeton Global Bond Fund - Advisor Class was our largest fixed income fund weighting at 4.7% of total net assets. Our largest domestic growth fund holding, Franklin Flex Cap Growth Fund -Advisor Class, and our largest domestic value fund holding, Mutual Shares Fund -Class Z, outperformed the S&P 500 during the 12-month reporting period. Our largest foreign equity fund holding, Mutual European Fund - Class Z, under-performed the MSCI EAFE Index; however, Templeton Foreign Fund - Advisor Class outperformed. On the fixed income side, Franklin U.S. Government Securities Fund - Advisor class underperformed the BC U.S. Aggregate Index while Templeton Global Bond Fund - Advisor Class outperformed. Thank you for your continued participation in Franklin Templeton Growth Target Fund. We look forward to serving your future investment needs. (PHOTO OF T. ANTHONY COFFEY) /s/ T. Anthony Coffey T. Anthony Coffey, CFA Portfolio Manager Franklin Templeton Growth Target Fund THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2009, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT OUR MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY. THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY, INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED RELIABLE, BUT THE INVESTMENT MANAGER MAKES NO REPRESENTATION OR WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR INVESTMENT MANAGEMENT PHILOSOPHY. Annual Report | 27 Performance Summary as of 12/31/09 FRANKLIN TEMPLETON GROWTH TARGET FUND Your dividend income will vary depending on dividends or interest paid by securities in the Fund's portfolio, adjusted for operating expenses of each class. Capital gain distributions are net profits realized from the sale of portfolio securities. The performance table and graphs do not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares. Total return reflects reinvestment of the Fund's dividends and capital gain distributions, if any, and any unrealized gains or losses. PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: FGTIX) CHANGE 12/31/09 12/31/08 - ----------------------- ------ -------- -------- Net Asset Value (NAV) +$3.03 $13.51 $10.48 DISTRIBUTIONS (1/1/09-12/31/09) Dividend Income $0.2099 Long-Term Capital Gain $0.0048 TOTAL $0.2147
CLASS B (SYMBOL: N/A) CHANGE 12/31/09 12/31/08 - --------------------- ------ -------- -------- Net Asset Value (NAV) +$2.96 $13.28 $10.32 DISTRIBUTIONS (1/1/09-12/31/09) Dividend Income $0.1266 Long-Term Capital Gain $0.0048 TOTAL $0.1314
CLASS C (SYMBOL: FTGTX) CHANGE 12/31/09 12/31/08 - ----------------------- ------ -------- -------- Net Asset Value (NAV) +$2.97 $13.28 $10.31 DISTRIBUTIONS (1/1/09-12/31/09) Dividend Income $0.1276 Long-Term Capital Gain $0.0048 TOTAL $0.1324
CLASS R (SYMBOL: FGTRX) CHANGE 12/31/09 12/31/08 - ----------------------- ------ -------- -------- Net Asset Value (NAV) +$3.00 $13.38 $10.38 DISTRIBUTIONS (1/1/09-12/31/09) Dividend Income $0.1873 Long-Term Capital Gain $0.0048 TOTAL $0.1921
ADVISOR CLASS (SYMBOL: FGTZX) CHANGE 12/31/09 12/31/08 - ----------------------------- ------ -------- -------- Net Asset Value (NAV) +$3.04 $13.53 $10.49 DISTRIBUTIONS (1/1/09-12/31/09) Dividend Income $0.2383 Long-Term Capital Gain $0.0048 TOTAL $0.2431
28 | Annual Report Performance Summary (CONTINUED) PERFORMANCE(1) CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURN AND VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 5.75% MAXIMUM INITIAL SALES CHARGE; CLASS B: CONTINGENT DEFERRED SALES CHARGE (CDSC) DECLINING FROM 4% TO 1% OVER SIX YEARS, AND ELIMINATED THEREAFTER; CLASS C: 1% CDSC IN FIRST YEAR ONLY; CLASS R/ADVISOR CLASS: NO SALES CHARGES.
CLASS A 1-YEAR 5-YEAR 10-YEAR - ------- ------- ------- ------- Cumulative Total Return(2) +31.08% +24.01% +28.92% Average Annual Total Return(3) +23.54% +3.17% +1.97% Value of $10,000 Investment(4) $12,354 $11,691 $12,155 Total Annual Operating Expenses(5) Without Waiver 1.58% With Waiver 1.31%
INCEPTION CLASS B 1-YEAR 5-YEAR (12/1/03) - ------- ------- ------- --------- Cumulative Total Return(2) +30.05% +19.44% +34.23% Average Annual Total Return(3) +26.05% +3.27% +4.96% Value of $10,000 Investment(4) $12,605 $11,744 $13,423 Total Annual Operating Expenses(5) Without Waiver 2.33% With Waiver 2.06%
CLASS C 1-YEAR 5-YEAR 10-YEAR - ------- ------- ------- ------- Cumulative Total Return(2) +30.19% +19.49% +19.70% Average Annual Total Return(3) +29.19% +3.63% +1.81% Value of $10,000 Investment(4) $12,919 $11,949 $11,970 Total Annual Operating Expenses(5) Without Waiver 2.33% With Waiver 2.06%
INCEPTION CLASS R 1-YEAR 5-YEAR (1/1/02) - ------- -------- -------- --------- Cumulative Total Return(2) +30.87% +22.50% +50.14% Average Annual Total Return(3) +30.87% +4.14% +5.22% Value of $10,000 Investment(4) $ 13,087 $ 12,250 $ 15,014 Total Annual Operating Expenses(5) Without Waiver 1.83% With Waiver 1.56%
ADVISOR CLASS(6) 1-YEAR 5-YEAR 10-YEAR - ---------------- ------- ------- --------- Cumulative Total Return(2) +31.43% +25.33% +30.29% Average Annual Total Return(3) +31.43% +4.62% +2.68% Value of $10,000 Investment(4) $13,143 $12,533 $13,029 Total Annual Operating Expenses(5) Without Waiver 1.33% With Waiver 1.06%
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM FIGURES SHOWN. FOR MOST RECENT MONTH-END PERFORMANCE, GO TO franklintempleton.com OR CALL (800) 342-5236. THE INVESTMENT MANAGER HAS CONTRACTUALLY AGREED TO WAIVE OR LIMIT ITS FEES AND TO ASSUME AS ITS OWN EXPENSE CERTAIN EXPENSES OTHERWISE PAYABLE BY THE FUND SO THAT COMMON EXPENSES (I.E., A COMBINATION OF ASSET ALLOCATION FEES AND OTHER EXPENSES, BUT EXCLUDING RULE 12B-1 FEES AND ACQUIRED FUND FEES AND EXPENSES) FOR EACH CLASS OF THE FUND DO NOT EXCEED 0.25% (OTHER THAN CERTAIN NONROUTINE EXPENSES OR COSTS, INCLUDING THOSE RELATING TO LITIGATION, INDEMNIFICATION, REORGANIZATIONS AND LIQUIDATIONS) UNTIL 4/30/10. Annual Report | 29 Performance Summary (CONTINUED) TOTAL RETURN INDEX COMPARISON FOR A HYPOTHETICAL $10,000 INVESTMENT(1) Total return represents the change in value of an investment over the periods shown. It includes any current, applicable, maximum sales charge, Fund expenses, account fees and reinvested distributions. The unmanaged indexes include reinvestment of any income or distributions. They differ from the Fund in composition and do not pay management fees or expenses. One cannot invest directly in an index. AVERAGE ANNUAL TOTAL RETURN
CLASS A 12/31/09 - ------- -------- 1-Year +23.54% 5-Year +3.17% 10-Year +1.97%
CLASS A (1/1/00-12/31/09) (PERFORMANCE GRAPH)
FRANKLIN TEMPLETON CONSERVATIVE TARGET S&P 500 MSCI EAFE BARCLAYS CAPITAL P&R 90-DAY U.S. DATE FUND - CLASS A INDEX INDEX U.S. AGGREGATE INDEX TREASURY BILL INDEX - ---------- ------------------- ------- ----------- -------------------- ------------------- 1/1/2000 $ 9,421 $10,000 $10,000 $10,000 $10,000 1/31/2000 $ 9,320 $ 9,498 $ 9,366 $ 9,967 $10,039 2/28/2000 $10,094 $ 9,318 $ 9,620 $10,088 $10,084 3/31/2000 $ 9,953 $10,229 $ 9,995 $10,221 $10,135 4/30/2000 $ 9,583 $ 9,922 $ 9,471 $10,191 $10,186 5/31/2000 $ 9,379 $ 9,718 $ 9,241 $10,187 $10,241 6/30/2000 $ 9,649 $ 9,958 $ 9,605 $10,399 $10,285 7/31/2000 $ 9,625 $ 9,802 $ 9,204 $10,493 $10,333 8/31/2000 $ 9,998 $10,411 $ 9,286 $10,645 $10,386 9/30/2000 $ 9,895 $ 9,861 $ 8,836 $10,712 $10,443 10/31/2000 $ 9,758 $ 9,819 $ 8,629 $10,783 $10,496 11/30/2000 $ 9,405 $ 9,045 $ 8,307 $10,959 $10,554 12/31/2000 $ 9,709 $ 9,090 $ 8,604 $11,163 $10,615 1/31/2001 $ 9,971 $ 9,412 $ 8,600 $11,345 $10,684 2/28/2001 $ 9,658 $ 8,554 $ 7,956 $11,444 $10,727 3/31/2001 $ 9,409 $ 8,012 $ 7,429 $11,501 $10,781 4/30/2001 $ 9,707 $ 8,635 $ 7,950 $11,454 $10,825 5/31/2001 $ 9,767 $ 8,692 $ 7,676 $11,523 $10,867 6/30/2001 $ 9,724 $ 8,481 $ 7,365 $11,566 $10,899 7/31/2001 $ 9,681 $ 8,397 $ 7,232 $11,825 $10,935 8/31/2001 $ 9,561 $ 7,872 $ 7,050 $11,960 $10,971 9/30/2001 $ 9,039 $ 7,236 $ 6,337 $12,100 $11,019 10/31/2001 $ 9,290 $ 7,374 $ 6,499 $12,353 $11,048 11/30/2001 $ 9,515 $ 7,940 $ 6,739 $12,183 $11,071 12/31/2001 $ 9,620 $ 8,009 $ 6,780 $12,105 $11,089 1/31/2002 $ 9,611 $ 7,892 $ 6,420 $12,203 $11,104 2/28/2002 $ 9,602 $ 7,740 $ 6,465 $12,322 $11,119 3/31/2002 $ 9,800 $ 8,031 $ 6,818 $12,117 $11,136 4/30/2002 $ 9,827 $ 7,544 $ 6,868 $12,352 $11,153 5/31/2002 $ 9,791 $ 7,489 $ 6,961 $12,457 $11,170 6/30/2002 $ 9,508 $ 6,955 $ 6,686 $12,564 $11,187 7/31/2002 $ 9,125 $ 6,413 $ 6,027 $12,716 $11,202 8/31/2002 $ 9,187 $ 6,455 $ 6,014 $12,931 $11,219 9/30/2002 $ 8,904 $ 5,754 $ 5,370 $13,140 $11,237 10/31/2002 $ 9,074 $ 6,260 $ 5,659 $13,080 $11,254 11/30/2002 $ 9,316 $ 6,629 $ 5,917 $13,077 $11,271 12/31/2002 $ 9,255 $ 6,239 $ 5,718 $13,347 $11,283 1/31/2003 $ 9,219 $ 6,076 $ 5,480 $13,358 $11,296 2/28/2003 $ 9,192 $ 5,985 $ 5,355 $13,543 $11,305 3/31/2003 $ 9,180 $ 6,043 $ 5,253 $13,533 $11,318 4/30/2003 $ 9,516 $ 6,540 $ 5,774 $13,645 $11,329 5/31/2003 $ 9,879 $ 6,885 $ 6,130 $13,899 $11,341 6/30/2003 $ 9,936 $ 6,973 $ 6,281 $13,871 $11,355 7/31/2003 $ 9,945 $ 7,096 $ 6,434 $13,405 $11,363 8/31/2003 $10,164 $ 7,234 $ 6,591 $13,494 $11,371 9/30/2003 $10,233 $ 7,157 $ 6,795 $13,851 $11,381 10/31/2003 $10,480 $ 7,562 $ 7,219 $13,722 $11,390 11/30/2003 $10,645 $ 7,629 $ 7,381 $13,755 $11,399 12/31/2003 $10,861 $ 8,029 $ 7,958 $13,895 $11,408 1/31/2004 $10,944 $ 8,176 $ 8,071 $14,007 $11,418 2/29/2004 $11,046 $ 8,290 $ 8,258 $14,158 $11,425 3/31/2004 $11,061 $ 8,165 $ 8,308 $14,264 $11,435 4/30/2004 $10,784 $ 8,037 $ 8,127 $13,893 $11,443 5/31/2004 $10,848 $ 8,147 $ 8,162 $13,838 $11,451 6/30/2004 $10,978 $ 8,305 $ 8,345 $13,916 $11,456 7/31/2004 $10,829 $ 8,030 $ 8,075 $14,054 $11,467 8/31/2004 $10,913 $ 8,063 $ 8,112 $14,322 $11,478 9/30/2004 $11,091 $ 8,150 $ 8,326 $14,361 $11,491 10/31/2004 $11,250 $ 8,275 $ 8,610 $14,481 $11,504 11/30/2004 $11,539 $ 8,610 $ 9,201 $14,366 $11,516 12/31/2004 $11,728 $ 8,902 $ 9,605 $14,498 $11,538 1/31/2005 $11,578 $ 8,685 $ 9,429 $14,589 $11,554 2/28/2005 $11,756 $ 8,868 $ 9,839 $14,503 $11,572 3/31/2005 $11,597 $ 8,711 $ 9,595 $14,428 $11,599 4/30/2005 $11,474 $ 8,546 $ 9,381 $14,624 $11,623 5/31/2005 $11,644 $ 8,818 $ 9,395 $14,782 $11,650 6/30/2005 $11,749 $ 8,830 $ 9,523 $14,862 $11,676 7/31/2005 $11,929 $ 9,159 $ 9,816 $14,727 $11,702 8/31/2005 $11,976 $ 9,075 $10,067 $14,916 $11,734 9/30/2005 $12,064 $ 9,149 $10,517 $14,762 $11,767 10/31/2005 $11,883 $ 8,996 $10,211 $14,645 $11,795 11/30/2005 $12,131 $ 9,337 $10,463 $14,710 $11,834 12/31/2005 $12,280 $ 9,340 $10,951 $14,850 $11,871 1/31/2006 $12,655 $ 9,587 $11,624 $14,851 $11,905 2/28/2006 $12,655 $ 9,613 $11,600 $14,900 $11,943 3/31/2006 $12,790 $ 9,733 $11,988 $14,754 $11,990 4/30/2006 $12,925 $ 9,863 $12,570 $14,727 $12,033 5/31/2006 $12,664 $ 9,580 $12,097 $14,711 $12,080 6/30/2006 $12,672 $ 9,593 $12,101 $14,743 $12,125 7/31/2006 $12,672 $ 9,652 $12,222 $14,942 $12,175 8/31/2006 $12,849 $ 9,881 $12,562 $15,171 $12,228 9/30/2006 $12,898 $10,136 $12,583 $15,304 $12,282 10/31/2006 $13,174 $10,466 $13,074 $15,405 $12,330 11/30/2006 $13,441 $10,665 $13,468 $15,584 $12,382 12/31/2006 $13,497 $10,815 $13,892 $15,493 $12,436 1/31/2007 $13,619 $10,978 $13,987 $15,487 $12,486 2/28/2007 $13,649 $10,764 $14,102 $15,726 $12,535 3/31/2007 $13,784 $10,884 $14,468 $15,726 $12,592 4/30/2007 $14,049 $11,366 $15,124 $15,811 $12,646 5/31/2007 $14,252 $11,763 $15,409 $15,691 $12,703 6/30/2007 $14,213 $11,567 $15,433 $15,645 $12,751 7/31/2007 $14,109 $11,209 $15,207 $15,776 $12,799 8/31/2007 $14,150 $11,377 $14,973 $15,969 $12,872 9/30/2007 $14,609 $11,802 $15,777 $16,090 $12,919 10/31/2007 $14,934 $11,990 $16,399 $16,235 $12,958 11/30/2007 $14,630 $11,489 $15,864 $16,527 $13,017 12/31/2007 $14,616 $11,409 $15,508 $16,573 $13,047 1/31/2008 $14,250 $10,725 $14,077 $16,851 $13,114 2/29/2008 $14,272 $10,376 $14,283 $16,875 $13,136 3/31/2008 $14,155 $10,332 $14,139 $16,932 $13,167 4/30/2008 $14,457 $10,835 $14,925 $16,897 $13,181 5/31/2008 $14,608 $10,975 $15,099 $16,773 $13,187 6/30/2008 $14,082 $10,050 $13,867 $16,759 $13,207 7/31/2008 $13,983 $ 9,965 $13,423 $16,746 $13,233 8/31/2008 $14,005 $10,109 $12,883 $16,905 $13,251 9/30/2008 $13,356 $ 9,209 $11,024 $16,678 $13,287 10/31/2008 $12,243 $ 7,662 $ 8,800 $16,284 $13,308 11/30/2008 $12,020 $ 7,112 $ 8,329 $16,814 $13,322 12/31/2008 $12,363 $ 7,188 $ 8,830 $17,441 $13,320 1/31/2009 $12,114 $ 6,582 $ 7,965 $17,288 $13,319 2/28/2009 $11,661 $ 5,881 $ 7,151 $17,222 $13,321 3/31/2009 $12,139 $ 6,396 $ 7,607 $17,462 $13,325 4/30/2009 $12,764 $ 7,009 $ 8,593 $17,545 $13,329 5/31/2009 $13,197 $ 7,401 $ 9,626 $17,672 $13,330 6/30/2009 $13,204 $ 7,415 $ 9,574 $17,773 $13,331 7/31/2009 $13,767 $ 7,976 $10,449 $18,060 $13,333 8/31/2009 $13,939 $ 8,264 $11,019 $18,247 $13,336 9/30/2009 $14,389 $ 8,573 $11,443 $18,438 $13,338 10/31/2009 $14,285 $ 8,413 $11,300 $18,529 $13,341 11/30/2009 $14,597 $ 8,918 $11,529 $18,769 $13,342 12/31/2009 $14,795 $ 9,090 $11,697 $18,476 $13,342
AVERAGE ANNUAL TOTAL RETURN
CLASS B 12/31/09 - ------- -------- 1-Year +26.05% 5-Year +3.27% Since Inception (12/1/03) +4.96%
CLASS B (12/1/03-12/31/09) (PERFORMANCE GRAPH)
FRANKLIN TEMPLETON CONSERVATIVE TARGET S&P 500 MSCI EAFE BARCLAYS CAPITAL P&R 90-DAY U.S. DATE FUND - CLASS B INDEX INDEX U.S. AGGREGATE INDEX TREASURY BILL INDEX - ---------- ------------------- ------- ----------- -------------------- ------------------- 12/1/2003 $10,000 $10,000 $10,000 $10,000 $10,000 12/31/2003 $10,170 $10,524 $10,782 $10,102 $10,008 1/31/2004 $10,239 $10,718 $10,935 $10,183 $10,016 2/29/2004 $10,326 $10,867 $11,189 $10,293 $10,023 3/31/2004 $10,337 $10,703 $11,257 $10,370 $10,031 4/30/2004 $10,068 $10,535 $11,012 $10,101 $10,038 5/31/2004 $10,129 $10,679 $11,059 $10,060 $10,045 6/30/2004 $10,237 $10,887 $11,306 $10,117 $10,050 7/31/2004 $10,098 $10,527 $10,941 $10,217 $10,059 8/31/2004 $10,168 $10,569 $10,991 $10,412 $10,069 9/30/2004 $10,329 $10,684 $11,280 $10,440 $10,080 10/31/2004 $10,468 $10,847 $11,666 $10,528 $10,092 11/30/2004 $10,738 $11,286 $12,466 $10,444 $10,102 12/31/2004 $10,908 $11,670 $13,013 $10,540 $10,122 1/31/2005 $10,751 $11,385 $12,775 $10,606 $10,136 2/28/2005 $10,917 $11,625 $13,330 $10,544 $10,151 3/31/2005 $10,757 $11,419 $13,001 $10,490 $10,175 4/30/2005 $10,643 $11,202 $12,710 $10,632 $10,196 5/31/2005 $10,792 $11,559 $12,729 $10,747 $10,220 6/30/2005 $10,878 $11,575 $12,903 $10,805 $10,243 7/31/2005 $11,045 $12,006 $13,299 $10,707 $10,265 8/31/2005 $11,080 $11,896 $13,639 $10,844 $10,293 9/30/2005 $11,150 $11,993 $14,250 $10,732 $10,323 10/31/2005 $10,982 $11,793 $13,834 $10,647 $10,347 11/30/2005 $11,194 $12,239 $14,177 $10,695 $10,381 12/31/2005 $11,330 $12,243 $14,837 $10,796 $10,414 1/31/2006 $11,669 $12,567 $15,749 $10,797 $10,443 2/28/2006 $11,669 $12,601 $15,717 $10,833 $10,477 3/31/2006 $11,779 $12,758 $16,243 $10,726 $10,518 4/30/2006 $11,886 $12,929 $17,030 $10,707 $10,555 5/31/2006 $11,645 $12,557 $16,389 $10,695 $10,597 6/30/2006 $11,650 $12,574 $16,395 $10,718 $10,637 7/31/2006 $11,632 $12,652 $16,560 $10,863 $10,680 8/31/2006 $11,795 $12,953 $17,019 $11,029 $10,727 9/30/2006 $11,835 $13,287 $17,049 $11,126 $10,774 10/31/2006 $12,071 $13,720 $17,714 $11,200 $10,816 11/30/2006 $12,316 $13,981 $18,248 $11,330 $10,862 12/31/2006 $12,355 $14,177 $18,822 $11,264 $10,909 1/31/2007 $12,457 $14,391 $18,951 $11,259 $10,953 2/28/2007 $12,485 $14,110 $19,106 $11,433 $10,996 3/31/2007 $12,593 $14,267 $19,603 $11,433 $11,046 4/30/2007 $12,836 $14,899 $20,491 $11,495 $11,094 5/31/2007 $13,013 $15,419 $20,878 $11,408 $11,143 6/30/2007 $12,962 $15,163 $20,910 $11,374 $11,185 7/31/2007 $12,857 $14,693 $20,604 $11,469 $11,228 8/31/2007 $12,886 $14,913 $20,287 $11,610 $11,292 9/30/2007 $13,299 $15,471 $21,376 $11,698 $11,333 10/31/2007 $13,587 $15,717 $22,219 $11,803 $11,367 11/30/2007 $13,299 $15,060 $21,494 $12,015 $11,419 12/31/2007 $13,272 $14,955 $21,011 $12,049 $11,445 1/31/2008 $12,948 $14,058 $19,072 $12,251 $11,504 2/29/2008 $12,948 $13,602 $19,352 $12,268 $11,524 3/31/2008 $12,836 $13,543 $19,157 $12,310 $11,550 4/30/2008 $13,111 $14,203 $20,222 $12,284 $11,562 5/31/2008 $13,229 $14,387 $20,457 $12,194 $11,568 6/30/2008 $12,748 $13,174 $18,788 $12,184 $11,586 7/31/2008 $12,647 $13,063 $18,187 $12,174 $11,609 8/31/2008 $12,667 $13,252 $17,454 $12,290 $11,624 9/30/2008 $12,066 $12,071 $14,937 $12,125 $11,656 10/31/2008 $11,058 $10,044 $11,923 $11,839 $11,674 11/30/2008 $10,846 $ 9,323 $11,285 $12,224 $11,687 12/31/2008 $11,145 $ 9,422 $11,964 $12,680 $11,685 1/31/2009 $10,919 $ 8,628 $10,792 $12,568 $11,684 2/28/2009 $10,510 $ 7,709 $ 9,688 $12,521 $11,685 3/31/2009 $10,931 $ 8,385 $10,307 $12,695 $11,689 4/30/2009 $11,486 $ 9,187 $11,643 $12,756 $11,692 5/31/2009 $11,866 $ 9,701 $13,042 $12,848 $11,694 6/30/2009 $11,871 $ 9,720 $12,971 $12,921 $11,694 7/31/2009 $12,368 $10,456 $14,157 $13,130 $11,696 8/31/2009 $12,513 $10,833 $14,929 $13,266 $11,699 9/30/2009 $12,908 $11,237 $15,504 $13,405 $11,700 10/31/2009 $12,814 $11,029 $15,311 $13,471 $11,703 11/30/2009 $13,074 $11,690 $15,621 $13,645 $11,704 12/31/2009 $13,246 $11,916 $15,848 $13,432 $11,704
30 | Annual Report Performance Summary (CONTINUED) AVERAGE ANNUAL TOTAL RETURN
CLASS C 12/31/09 - ------- -------- 1-Year +29.19% 5-Year +3.63% 10-Year +1.81%
CLASS C (1/1/00-12/31/09) (PERFORMANCE GRAPH)
FRANKLIN TEMPLETON CONSERVATIVE TARGET S&P 500 MSCI EAFE BARCLAYS CAPITAL P&R 90-DAY U.S. DATE FUND - CLASS C INDEX INDEX U.S. AGGREGATE INDEX TREASURY BILL INDEX - ---------- ------------------- ------- ----------- -------------------- ------------------- 1/1/2000 $10,000 $10,000 $10,000 $10,000 $10,000 1/31/2000 $ 9,883 $ 9,498 $ 9,366 $ 9,967 $10,039 2/28/2000 $10,702 $ 9,318 $ 9,620 $10,088 $10,084 3/31/2000 $10,541 $10,229 $ 9,995 $10,221 $10,135 4/30/2000 $10,147 $ 9,922 $ 9,471 $10,191 $10,186 5/31/2000 $ 9,928 $ 9,718 $ 9,241 $10,187 $10,241 6/30/2000 $10,198 $ 9,958 $ 9,605 $10,399 $10,285 7/31/2000 $10,172 $ 9,802 $ 9,204 $10,493 $10,333 8/31/2000 $10,553 $10,411 $ 9,286 $10,645 $10,386 9/30/2000 $10,441 $ 9,861 $ 8,836 $10,712 $10,443 10/31/2000 $10,296 $ 9,819 $ 8,629 $10,783 $10,496 11/30/2000 $ 9,912 $ 9,045 $ 8,307 $10,959 $10,554 12/31/2000 $10,226 $ 9,090 $ 8,604 $11,163 $10,615 1/31/2001 $10,496 $ 9,412 $ 8,600 $11,345 $10,684 2/28/2001 $10,164 $ 8,554 $ 7,956 $11,444 $10,727 3/31/2001 $ 9,895 $ 8,012 $ 7,429 $11,501 $10,781 4/30/2001 $10,202 $ 8,635 $ 7,950 $11,454 $10,825 5/31/2001 $10,256 $ 8,692 $ 7,676 $11,523 $10,867 6/30/2001 $10,201 $ 8,481 $ 7,365 $11,566 $10,899 7/31/2001 $10,156 $ 8,397 $ 7,232 $11,825 $10,935 8/31/2001 $10,020 $ 7,872 $ 7,050 $11,960 $10,971 9/30/2001 $ 9,468 $ 7,236 $ 6,337 $12,100 $11,019 10/31/2001 $ 9,724 $ 7,374 $ 6,499 $12,353 $11,048 11/30/2001 $ 9,953 $ 7,940 $ 6,739 $12,183 $11,071 12/31/2001 $10,065 $ 8,009 $ 6,780 $12,105 $11,089 1/31/2002 $10,037 $ 7,892 $ 6,420 $12,203 $11,104 2/28/2002 $10,019 $ 7,740 $ 6,465 $12,322 $11,119 3/31/2002 $10,225 $ 8,031 $ 6,818 $12,117 $11,136 4/30/2002 $10,244 $ 7,544 $ 6,868 $12,352 $11,153 5/31/2002 $10,197 $ 7,489 $ 6,961 $12,457 $11,170 6/30/2002 $ 9,901 $ 6,955 $ 6,686 $12,564 $11,187 7/31/2002 $ 9,498 $ 6,413 $ 6,027 $12,716 $11,202 8/31/2002 $ 9,563 $ 6,455 $ 6,014 $12,931 $11,219 9/30/2002 $ 9,260 $ 5,754 $ 5,370 $13,140 $11,237 10/31/2002 $ 9,429 $ 6,260 $ 5,659 $13,080 $11,254 11/30/2002 $ 9,674 $ 6,629 $ 5,917 $13,077 $11,271 12/31/2002 $ 9,608 $ 6,239 $ 5,718 $13,347 $11,283 1/31/2003 $ 9,560 $ 6,076 $ 5,480 $13,358 $11,296 2/28/2003 $ 9,532 $ 5,985 $ 5,355 $13,543 $11,305 3/31/2003 $ 9,513 $ 6,043 $ 5,253 $13,533 $11,318 4/30/2003 $ 9,845 $ 6,540 $ 5,774 $13,645 $11,329 5/31/2003 $10,225 $ 6,885 $ 6,130 $13,899 $11,341 6/30/2003 $10,277 $ 6,973 $ 6,281 $13,871 $11,355 7/31/2003 $10,277 $ 7,096 $ 6,434 $13,405 $11,363 8/31/2003 $10,496 $ 7,234 $ 6,591 $13,494 $11,371 9/30/2003 $10,560 $ 7,157 $ 6,795 $13,851 $11,381 10/31/2003 $10,808 $ 7,562 $ 7,219 $13,722 $11,390 11/30/2003 $10,970 $ 7,629 $ 7,381 $13,755 $11,399 12/31/2003 $11,189 $ 8,029 $ 7,958 $13,895 $11,408 1/31/2004 $11,265 $ 8,176 $ 8,071 $14,007 $11,418 2/29/2004 $11,362 $ 8,290 $ 8,258 $14,158 $11,425 3/31/2004 $11,375 $ 8,165 $ 8,308 $14,264 $11,435 4/30/2004 $11,077 $ 8,037 $ 8,127 $13,893 $11,443 5/31/2004 $11,144 $ 8,147 $ 8,162 $13,838 $11,451 6/30/2004 $11,257 $ 8,305 $ 8,345 $13,916 $11,456 7/31/2004 $11,103 $ 8,030 $ 8,075 $14,054 $11,467 8/31/2004 $11,180 $ 8,063 $ 8,112 $14,322 $11,478 9/30/2004 $11,364 $ 8,150 $ 8,326 $14,361 $11,491 10/31/2004 $11,518 $ 8,275 $ 8,610 $14,481 $11,504 11/30/2004 $11,808 $ 8,610 $ 9,201 $14,366 $11,516 12/31/2004 $11,994 $ 8,902 $ 9,605 $14,498 $11,538 1/31/2005 $11,819 $ 8,685 $ 9,429 $14,589 $11,554 2/28/2005 $12,004 $ 8,868 $ 9,839 $14,503 $11,572 3/31/2005 $11,835 $ 8,711 $ 9,595 $14,428 $11,599 4/30/2005 $11,708 $ 8,546 $ 9,381 $14,624 $11,623 5/31/2005 $11,864 $ 8,818 $ 9,395 $14,782 $11,650 6/30/2005 $11,969 $ 8,830 $ 9,523 $14,862 $11,676 7/31/2005 $12,144 $ 9,159 $ 9,816 $14,727 $11,702 8/31/2005 $12,183 $ 9,075 $10,067 $14,916 $11,734 9/30/2005 $12,262 $ 9,149 $10,517 $14,762 $11,767 10/31/2005 $12,076 $ 8,996 $10,211 $14,645 $11,795 11/30/2005 $12,311 $ 9,337 $10,463 $14,710 $11,834 12/31/2005 $12,453 $ 9,340 $10,951 $14,850 $11,871 1/31/2006 $12,838 $ 9,587 $11,624 $14,851 $11,905 2/28/2006 $12,829 $ 9,613 $11,600 $14,900 $11,943 3/31/2006 $12,961 $ 9,733 $11,988 $14,754 $11,990 4/30/2006 $13,080 $ 9,863 $12,570 $14,727 $12,033 5/31/2006 $12,803 $ 9,580 $12,097 $14,711 $12,080 6/30/2006 $12,817 $ 9,593 $12,101 $14,743 $12,125 7/31/2006 $12,797 $ 9,652 $12,222 $14,942 $12,175 8/31/2006 $12,968 $ 9,881 $12,562 $15,171 $12,228 9/30/2006 $13,014 $10,136 $12,583 $15,304 $12,282 10/31/2006 $13,286 $10,466 $13,074 $15,405 $12,330 11/30/2006 $13,548 $10,665 $13,468 $15,584 $12,382 12/31/2006 $13,593 $10,815 $13,892 $15,493 $12,436 1/31/2007 $13,707 $10,978 $13,987 $15,487 $12,486 2/28/2007 $13,727 $10,764 $14,102 $15,726 $12,535 3/31/2007 $13,859 $10,884 $14,468 $15,726 $12,592 4/30/2007 $14,118 $11,366 $15,124 $15,811 $12,646 5/31/2007 $14,314 $11,763 $15,409 $15,691 $12,703 6/30/2007 $14,259 $11,567 $15,433 $15,645 $12,751 7/31/2007 $14,143 $11,209 $15,207 $15,776 $12,799 8/31/2007 $14,185 $11,377 $14,973 $15,969 $12,872 9/30/2007 $14,625 $11,802 $15,777 $16,090 $12,919 10/31/2007 $14,955 $11,990 $16,399 $16,235 $12,958 11/30/2007 $14,636 $11,489 $15,864 $16,527 $13,017 12/31/2007 $14,609 $11,409 $15,508 $16,573 $13,047 1/31/2008 $14,239 $10,725 $14,077 $16,851 $13,114 2/29/2008 $14,239 $10,376 $14,283 $16,875 $13,136 3/31/2008 $14,117 $10,332 $14,139 $16,932 $13,167 4/30/2008 $14,422 $10,835 $14,925 $16,897 $13,181 5/31/2008 $14,553 $10,975 $15,099 $16,773 $13,187 6/30/2008 $14,023 $10,050 $13,867 $16,759 $13,207 7/31/2008 $13,912 $ 9,965 $13,423 $16,746 $13,233 8/31/2008 $13,934 $10,109 $12,883 $16,905 $13,251 9/30/2008 $13,277 $ 9,209 $11,024 $16,678 $13,287 10/31/2008 $12,155 $ 7,662 $ 8,800 $16,284 $13,308 11/30/2008 $11,931 $ 7,112 $ 8,329 $16,814 $13,322 12/31/2008 $12,266 $ 7,188 $ 8,830 $17,441 $13,320 1/31/2009 $12,015 $ 6,582 $ 7,965 $17,288 $13,319 2/28/2009 $11,560 $ 5,881 $ 7,151 $17,222 $13,321 3/31/2009 $12,031 $ 6,396 $ 7,607 $17,462 $13,325 4/30/2009 $12,636 $ 7,009 $ 8,593 $17,545 $13,329 5/31/2009 $13,059 $ 7,401 $ 9,626 $17,672 $13,330 6/30/2009 $13,055 $ 7,415 $ 9,574 $17,773 $13,331 7/31/2009 $13,608 $ 7,976 $10,449 $18,060 $13,333 8/31/2009 $13,758 $ 8,264 $11,019 $18,247 $13,336 9/30/2009 $14,198 $ 8,573 $11,443 $18,438 $13,338 10/31/2009 $14,094 $ 8,413 $11,300 $18,529 $13,341 11/30/2009 $14,383 $ 8,918 $11,529 $18,769 $13,342 12/31/2009 $14,577 $ 9,090 $11,697 $18,476 $13,342
AVERAGE ANNUAL TOTAL RETURN
CLASS R 12/31/09 - ------- -------- 1-Year +30.87% 5-Year +4.14% Since Inception (1/1/02) +5.22%
CLASS R (1/1/02-12/31/09) (PERFORMANCE GRAPH)
FRANKLIN TEMPLETON CONSERVATIVE TARGET S&P 500 MSCI EAFE BARCLAYS CAPITAL P&R 90-DAY U.S. DATE FUND - CLASS R INDEX INDEX U.S. AGGREGATE INDEX TREASURY BILL INDEX - ---------- ------------------- ------- ----------- -------------------- ------------------- 1/1/2002 $10,000 $10,000 $10,000 $10,000 $10,000 1/31/2002 $ 9,982 $ 9,854 $ 9,469 $10,081 $10,014 2/28/2002 $ 9,972 $ 9,664 $ 9,536 $10,179 $10,027 3/31/2002 $10,178 $10,027 $10,057 $10,009 $10,042 4/30/2002 $10,196 $ 9,420 $10,130 $10,204 $10,057 5/31/2002 $10,159 $ 9,350 $10,267 $10,290 $10,073 6/30/2002 $ 9,869 $ 8,684 $ 9,862 $10,379 $10,088 7/31/2002 $ 9,461 $ 8,007 $ 8,889 $10,505 $10,102 8/31/2002 $ 9,526 $ 8,060 $ 8,871 $10,682 $10,117 9/30/2002 $ 9,232 $ 7,184 $ 7,921 $10,855 $10,133 10/31/2002 $ 9,409 $ 7,816 $ 8,347 $10,806 $10,149 11/30/2002 $ 9,650 $ 8,276 $ 8,727 $10,803 $10,165 12/31/2002 $ 9,591 $ 7,790 $ 8,434 $11,026 $10,175 1/31/2003 $ 9,554 $ 7,586 $ 8,083 $11,035 $10,186 2/28/2003 $ 9,516 $ 7,472 $ 7,898 $11,188 $10,195 3/31/2003 $ 9,510 $ 7,545 $ 7,749 $11,179 $10,207 4/30/2003 $ 9,850 $ 8,166 $ 8,517 $11,272 $10,217 5/31/2003 $10,228 $ 8,596 $ 9,041 $11,482 $10,227 6/30/2003 $10,284 $ 8,706 $ 9,265 $11,459 $10,240 7/31/2003 $10,293 $ 8,859 $ 9,491 $11,074 $10,247 8/31/2003 $10,511 $ 9,032 $ 9,721 $11,147 $10,255 9/30/2003 $10,584 $ 8,936 $10,023 $11,442 $10,263 10/31/2003 $10,831 $ 9,442 $10,648 $11,336 $10,272 11/30/2003 $11,002 $ 9,525 $10,887 $11,363 $10,280 12/31/2003 $11,228 $10,024 $11,738 $11,478 $10,288 1/31/2004 $11,314 $10,208 $11,904 $11,571 $10,297 2/29/2004 $11,410 $10,350 $12,181 $11,696 $10,303 3/31/2004 $11,431 $10,194 $12,255 $11,784 $10,312 4/30/2004 $11,134 $10,034 $11,988 $11,477 $10,319 5/31/2004 $11,210 $10,172 $12,040 $11,431 $10,326 6/30/2004 $11,328 $10,370 $12,308 $11,496 $10,331 7/31/2004 $11,174 $10,026 $11,911 $11,610 $10,341 8/31/2004 $11,260 $10,067 $11,966 $11,831 $10,351 9/30/2004 $11,449 $10,176 $12,280 $11,863 $10,363 10/31/2004 $11,604 $10,332 $12,700 $11,963 $10,375 11/30/2004 $11,902 $10,750 $13,571 $11,867 $10,385 12/31/2004 $12,098 $11,115 $14,167 $11,976 $10,405 1/31/2005 $11,932 $10,844 $13,908 $12,052 $10,420 2/28/2005 $12,117 $11,073 $14,512 $11,981 $10,436 3/31/2005 $11,948 $10,877 $14,153 $11,919 $10,460 4/30/2005 $11,821 $10,670 $13,837 $12,080 $10,482 5/31/2005 $11,996 $11,010 $13,858 $12,211 $10,506 6/30/2005 $12,097 $11,025 $14,047 $12,278 $10,530 7/31/2005 $12,283 $11,435 $14,479 $12,166 $10,553 8/31/2005 $12,332 $11,331 $14,849 $12,322 $10,582 9/30/2005 $12,415 $11,423 $15,513 $12,195 $10,612 10/31/2005 $12,228 $11,232 $15,061 $12,098 $10,636 11/30/2005 $12,474 $11,657 $15,433 $12,152 $10,672 12/31/2005 $12,627 $11,661 $16,153 $12,267 $10,705 1/31/2006 $13,013 $11,970 $17,145 $12,268 $10,736 2/28/2006 $13,013 $12,003 $17,110 $12,309 $10,770 3/31/2006 $13,155 $12,152 $17,683 $12,188 $10,812 4/30/2006 $13,284 $12,315 $18,540 $12,166 $10,851 5/31/2006 $13,005 $11,961 $17,843 $12,153 $10,893 6/30/2006 $13,025 $11,977 $17,849 $12,179 $10,934 7/31/2006 $13,015 $12,051 $18,028 $12,343 $10,979 8/31/2006 $13,197 $12,338 $18,528 $12,532 $11,028 9/30/2006 $13,239 $12,655 $18,561 $12,642 $11,076 10/31/2006 $13,524 $13,068 $19,284 $12,726 $11,119 11/30/2006 $13,798 $13,316 $19,866 $12,874 $11,166 12/31/2006 $13,855 $13,503 $20,491 $12,799 $11,215 1/31/2007 $13,969 $13,707 $20,631 $12,794 $11,260 2/28/2007 $14,000 $13,439 $20,800 $12,991 $11,304 3/31/2007 $14,134 $13,590 $21,340 $12,991 $11,355 4/30/2007 $14,406 $14,192 $22,308 $13,061 $11,404 5/31/2007 $14,615 $14,687 $22,729 $12,962 $11,455 6/30/2007 $14,565 $14,443 $22,764 $12,924 $11,499 7/31/2007 $14,458 $13,995 $22,431 $13,032 $11,542 8/31/2007 $14,501 $14,205 $22,086 $13,192 $11,608 9/30/2007 $14,953 $14,736 $23,272 $13,292 $11,650 10/31/2007 $15,297 $14,970 $24,189 $13,411 $11,686 11/30/2007 $14,974 $14,345 $23,399 $13,652 $11,738 12/31/2007 $14,951 $14,245 $22,874 $13,691 $11,766 1/31/2008 $14,587 $13,391 $20,763 $13,921 $11,826 2/29/2008 $14,598 $12,956 $21,067 $13,940 $11,846 3/31/2008 $14,472 $12,900 $20,856 $13,987 $11,874 4/30/2008 $14,794 $13,528 $22,015 $13,958 $11,886 5/31/2008 $14,938 $13,703 $22,271 $13,856 $11,892 6/30/2008 $14,399 $12,548 $20,454 $13,845 $11,910 7/31/2008 $14,285 $12,442 $19,799 $13,833 $11,934 8/31/2008 $14,308 $12,622 $19,002 $13,965 $11,950 9/30/2008 $13,646 $11,498 $16,261 $13,777 $11,983 10/31/2008 $12,506 $ 9,567 $12,981 $13,452 $12,001 11/30/2008 $12,278 $ 8,880 $12,285 $13,890 $12,014 12/31/2008 $12,621 $ 8,975 $13,025 $14,408 $12,012 1/31/2009 $12,366 $ 8,218 $11,749 $14,281 $12,011 2/28/2009 $11,902 $ 7,343 $10,547 $14,227 $12,013 3/31/2009 $12,385 $ 7,986 $11,221 $14,425 $12,016 4/30/2009 $13,024 $ 8,751 $12,675 $14,494 $12,020 5/31/2009 $13,467 $ 9,240 $14,198 $14,599 $12,021 6/30/2009 $13,467 $ 9,259 $14,121 $14,682 $12,022 7/31/2009 $14,042 $ 9,959 $15,413 $14,919 $12,024 8/31/2009 $14,207 $10,318 $16,253 $15,073 $12,026 9/30/2009 $14,660 $10,703 $16,878 $15,232 $12,028 10/31/2009 $14,565 $10,505 $16,668 $15,307 $12,031 11/30/2009 $14,861 $11,135 $17,006 $15,505 $12,031 12/31/2009 $15,076 $11,350 $17,253 $15,263 $12,032
Annual Report | 31 Performance Summary (CONTINUED) AVERAGE ANNUAL TOTAL RETURN
ADVISOR CLASS(6) 12/31/09 - ---------------- -------- 1-Year +31.43% 5-Year +4.62% 10-Year +2.68%
ADVISOR CLASS (1/1/00-12/31/09)(6) (PERFORMANCE GRAPH)
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND - ADVISOR S&P 500 MSCI EAFE BARCLAYS CAPITAL P&R 90-DAY U.S. DATE CLASS INDEX INDEX U.S. AGGREGATE INDEX TREASURY BILL INDEX - ---------- ------------------- ------- ----------- -------------------- ------------------- 1/1/2000 $10,000 $10,000 $10,000 $10,000 $10,000 1/31/2000 $ 9,892 $ 9,498 $ 9,366 $ 9,967 $10,039 2/28/2000 $10,714 $ 9,318 $ 9,620 $10,088 $10,084 3/31/2000 $10,564 $10,229 $ 9,995 $10,221 $10,135 4/30/2000 $10,172 $ 9,922 $ 9,471 $10,191 $10,186 5/31/2000 $ 9,955 $ 9,718 $ 9,241 $10,187 $10,241 6/30/2000 $10,241 $ 9,958 $ 9,605 $10,399 $10,285 7/31/2000 $10,216 $ 9,802 $ 9,204 $10,493 $10,333 8/31/2000 $10,612 $10,411 $ 9,286 $10,645 $10,386 9/30/2000 $10,502 $ 9,861 $ 8,836 $10,712 $10,443 10/31/2000 $10,357 $ 9,819 $ 8,629 $10,783 $10,496 11/30/2000 $ 9,983 $ 9,045 $ 8,307 $10,959 $10,554 12/31/2000 $10,305 $ 9,090 $ 8,604 $11,163 $10,615 1/31/2001 $10,584 $ 9,412 $ 8,600 $11,345 $10,684 2/28/2001 $10,251 $ 8,554 $ 7,956 $11,444 $10,727 3/31/2001 $ 9,987 $ 8,012 $ 7,429 $11,501 $10,781 4/30/2001 $10,303 $ 8,635 $ 7,950 $11,454 $10,825 5/31/2001 $10,366 $ 8,692 $ 7,676 $11,523 $10,867 6/30/2001 $10,321 $ 8,481 $ 7,365 $11,566 $10,899 7/31/2001 $10,275 $ 8,397 $ 7,232 $11,825 $10,935 8/31/2001 $10,148 $ 7,872 $ 7,050 $11,960 $10,971 9/30/2001 $ 9,594 $ 7,236 $ 6,337 $12,100 $11,019 10/31/2001 $ 9,860 $ 7,374 $ 6,499 $12,353 $11,048 11/30/2001 $10,099 $ 7,940 $ 6,739 $12,183 $11,071 12/31/2001 $10,211 $ 8,009 $ 6,780 $12,105 $11,089 1/31/2002 $10,201 $ 7,892 $ 6,420 $12,203 $11,104 2/28/2002 $10,192 $ 7,740 $ 6,465 $12,322 $11,119 3/31/2002 $10,402 $ 8,031 $ 6,818 $12,117 $11,136 4/30/2002 $10,430 $ 7,544 $ 6,868 $12,352 $11,153 5/31/2002 $10,392 $ 7,489 $ 6,961 $12,457 $11,170 6/30/2002 $10,092 $ 6,955 $ 6,686 $12,564 $11,187 7/31/2002 $ 9,685 $ 6,413 $ 6,027 $12,716 $11,202 8/31/2002 $ 9,751 $ 6,455 $ 6,014 $12,931 $11,219 9/30/2002 $ 9,450 $ 5,754 $ 5,370 $13,140 $11,237 10/31/2002 $ 9,631 $ 6,260 $ 5,659 $13,080 $11,254 11/30/2002 $ 9,888 $ 6,629 $ 5,917 $13,077 $11,271 12/31/2002 $ 9,824 $ 6,239 $ 5,718 $13,347 $11,283 1/31/2003 $ 9,785 $ 6,076 $ 5,480 $13,358 $11,296 2/28/2003 $ 9,756 $ 5,985 $ 5,355 $13,543 $11,305 3/31/2003 $ 9,743 $ 6,043 $ 5,253 $13,533 $11,318 4/30/2003 $10,100 $ 6,540 $ 5,774 $13,645 $11,329 5/31/2003 $10,486 $ 6,885 $ 6,130 $13,899 $11,341 6/30/2003 $10,546 $ 6,973 $ 6,281 $13,871 $11,355 7/31/2003 $10,556 $ 7,096 $ 6,434 $13,405 $11,363 8/31/2003 $10,788 $ 7,234 $ 6,591 $13,494 $11,371 9/30/2003 $10,861 $ 7,157 $ 6,795 $13,851 $11,381 10/31/2003 $11,123 $ 7,562 $ 7,219 $13,722 $11,390 11/30/2003 $11,298 $ 7,629 $ 7,381 $13,755 $11,399 12/31/2003 $11,528 $ 8,029 $ 7,958 $13,895 $11,408 1/31/2004 $11,616 $ 8,176 $ 8,071 $14,007 $11,418 2/29/2004 $11,724 $ 8,290 $ 8,258 $14,158 $11,425 3/31/2004 $11,741 $ 8,165 $ 8,308 $14,264 $11,435 4/30/2004 $11,446 $ 8,037 $ 8,127 $13,893 $11,443 5/31/2004 $11,515 $ 8,147 $ 8,162 $13,838 $11,451 6/30/2004 $11,652 $ 8,305 $ 8,345 $13,916 $11,456 7/31/2004 $11,494 $ 8,030 $ 8,075 $14,054 $11,467 8/31/2004 $11,583 $ 8,063 $ 8,112 $14,322 $11,478 9/30/2004 $11,773 $ 8,150 $ 8,326 $14,361 $11,491 10/31/2004 $11,941 $ 8,275 $ 8,610 $14,481 $11,504 11/30/2004 $12,248 $ 8,610 $ 9,201 $14,366 $11,516 12/31/2004 $12,448 $ 8,902 $ 9,605 $14,498 $11,538 1/31/2005 $12,289 $ 8,685 $ 9,429 $14,589 $11,554 2/28/2005 $12,478 $ 8,868 $ 9,839 $14,503 $11,572 3/31/2005 $12,309 $ 8,711 $ 9,595 $14,428 $11,599 4/30/2005 $12,179 $ 8,546 $ 9,381 $14,624 $11,623 5/31/2005 $12,359 $ 8,818 $ 9,395 $14,782 $11,650 6/30/2005 $12,470 $ 8,830 $ 9,523 $14,862 $11,676 7/31/2005 $12,661 $ 9,159 $ 9,816 $14,727 $11,702 8/31/2005 $12,712 $ 9,075 $10,067 $14,916 $11,734 9/30/2005 $12,805 $ 9,149 $10,517 $14,762 $11,767 10/31/2005 $12,613 $ 8,996 $10,211 $14,645 $11,795 11/30/2005 $12,876 $ 9,337 $10,463 $14,710 $11,834 12/31/2005 $13,024 $ 9,340 $10,951 $14,850 $11,871 1/31/2006 $13,433 $ 9,587 $11,624 $14,851 $11,905 2/28/2006 $13,433 $ 9,613 $11,600 $14,900 $11,943 3/31/2006 $13,581 $ 9,733 $11,988 $14,754 $11,990 4/30/2006 $13,725 $ 9,863 $12,570 $14,727 $12,033 5/31/2006 $13,448 $ 9,580 $12,097 $14,711 $12,080 6/30/2006 $13,465 $ 9,593 $12,101 $14,743 $12,125 7/31/2006 $13,465 $ 9,652 $12,222 $14,942 $12,175 8/31/2006 $13,653 $ 9,881 $12,562 $15,171 $12,228 9/30/2006 $13,713 $10,136 $12,583 $15,304 $12,282 10/31/2006 $14,008 $10,466 $13,074 $15,405 $12,330 11/30/2006 $14,291 $10,665 $13,468 $15,584 $12,382 12/31/2006 $14,363 $10,815 $13,892 $15,493 $12,436 1/31/2007 $14,492 $10,978 $13,987 $15,487 $12,486 2/28/2007 $14,525 $10,764 $14,102 $15,726 $12,535 3/31/2007 $14,674 $10,884 $14,468 $15,726 $12,592 4/30/2007 $14,956 $11,366 $15,124 $15,811 $12,646 5/31/2007 $15,184 $11,763 $15,409 $15,691 $12,703 6/30/2007 $15,140 $11,567 $15,433 $15,645 $12,751 7/31/2007 $15,029 $11,209 $15,207 $15,776 $12,799 8/31/2007 $15,074 $11,377 $14,973 $15,969 $12,872 9/30/2007 $15,561 $11,802 $15,777 $16,090 $12,919 10/31/2007 $15,919 $11,990 $16,399 $16,235 $12,958 11/30/2007 $15,595 $11,489 $15,864 $16,527 $13,017 12/31/2007 $15,580 $11,409 $15,508 $16,573 $13,047 1/31/2008 $15,201 $10,725 $14,077 $16,851 $13,114 2/29/2008 $15,224 $10,376 $14,283 $16,875 $13,136 3/31/2008 $15,105 $10,332 $14,139 $16,932 $13,167 4/30/2008 $15,440 $10,835 $14,925 $16,897 $13,181 5/31/2008 $15,590 $10,975 $15,099 $16,773 $13,187 6/30/2008 $15,040 $10,050 $13,867 $16,759 $13,207 7/31/2008 $14,934 $ 9,965 $13,423 $16,746 $13,233 8/31/2008 $14,957 $10,109 $12,883 $16,905 $13,251 9/30/2008 $14,273 $ 9,209 $11,024 $16,678 $13,287 10/31/2008 $13,082 $ 7,662 $ 8,800 $16,284 $13,308 11/30/2008 $12,844 $ 7,112 $ 8,329 $16,814 $13,322 12/31/2008 $13,219 $ 7,188 $ 8,830 $17,441 $13,320 1/31/2009 $12,953 $ 6,582 $ 7,965 $17,288 $13,319 2/28/2009 $12,480 $ 5,881 $ 7,151 $17,222 $13,321 3/31/2009 $12,987 $ 6,396 $ 7,607 $17,462 $13,325 4/30/2009 $13,669 $ 7,009 $ 8,593 $17,545 $13,329 5/31/2009 $14,132 $ 7,401 $ 9,626 $17,672 $13,330 6/30/2009 $14,135 $ 7,415 $ 9,574 $17,773 $13,331 7/31/2009 $14,751 $ 7,976 $10,449 $18,060 $13,333 8/31/2009 $14,923 $ 8,264 $11,019 $18,247 $13,336 9/30/2009 $15,414 $ 8,573 $11,443 $18,438 $13,338 10/31/2009 $15,315 $ 8,413 $11,300 $18,529 $13,341 11/30/2009 $15,637 $ 8,918 $11,529 $18,769 $13,342 12/31/2009 $15,859 $ 9,090 $11,697 $18,476 $13,342
ENDNOTES WHILE AN ASSET ALLOCATION PLAN CAN BE A VALUABLE TOOL TO HELP REDUCE OVERALL VOLATILITY, ALL INVESTMENTS INVOLVE SOME DEGREE OF RISK. TYPICALLY, THE MORE AGGRESSIVE THE INVESTMENT, OR THE GREATER THE POTENTIAL RETURN, THE MORE RISK INVOLVED. GENERALLY, INVESTORS SHOULD BE COMFORTABLE WITH SOME FLUCTUATION IN THE VALUE OF THEIR INVESTMENTS, ESPECIALLY OVER THE SHORT TERM. STOCKS HAVE HISTORICALLY OUTPERFORMED OTHER ASSET CLASSES OVER THE LONG TERM, BUT THEY TEND TO FLUCTUATE MORE DRAMATICALLY OVER THE SHORTER TERM. BOND PRICES GENERALLY MOVE IN THE OPPOSITE DIRECTION OF INTEREST RATES. THUS, AS PRICES OF BONDS IN A FUND ADJUST TO A RISE IN INTEREST RATES, THAT FUND'S SHARE PRICE MAY DECLINE. BECAUSE THIS FUND INVESTS IN UNDERLYING FUNDS, WHICH MAY ENGAGE IN A VARIETY OF INVESTMENT STRATEGIES INVOLVING CERTAIN RISKS, THE FUND MAY BE SUBJECT TO THOSE SAME RISKS. THESE RISKS ARE DESCRIBED IN THE FUND'S PROSPECTUS. CLASS B: These shares have higher annual fees and expenses than Class A shares. CLASS C: Prior to 1/1/04, these shares were offered with an initial sales charge; thus actual total returns would have differed. These shares have higher annual fees and expenses than Class A shares. CLASS R: Shares are available to certain eligible investors as described in the prospectus. These shares have higher annual fees and expenses than Class A shares. ADVISOR CLASS: Shares are available to certain eligible investors as described in the prospectus. (1.) If the manager had not waived fees, the Fund's total returns would have been lower. (2.) Cumulative total return represents the change in value of an investment over the periods indicated. (3.) Average annual total return represents the average annual change in value of an investment over the periods indicated. (4.) These figures represent the value of a hypothetical $10,000 investment in the Fund over the periods indicated. (5.) Figures are as stated in the Fund's prospectus current as of the date of this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses to become higher than the figures shown. (6.) Effective 12/1/05, the Fund began offering Advisor Class shares, which do not have sales charges or a Rule 12b-1 plan. Performance quotations for this class reflect the following methods of calculation: (a) For periods prior to 12/1/05, a restated figure is used based upon the Fund's Class A performance, excluding the effect of Class A's maximum initial sales charge, but reflecting the effect of the Class A Rule 12b-1 fees; and (b) for periods after 11/30/05, actual Advisor Class performance is used reflecting all charges and fees applicable to that class. Since 12/1/05 (commencement of sales), the cumulative and average annual total returns of Advisor Class shares were +16.16% and +3.74%. (7.) Source: (C) 2009 Morningstar. See page 26 for descriptions of the S&P 500, the MSCI EAFE Index, the BC U.S. Aggregate Index and the P&R 90 Day U.S. T-Bill Index. 32 | Annual Report Your Fund's Expenses FRANKLIN TEMPLETON GROWTH TARGET FUND As a Fund shareholder, you can incur two types of costs: - - Transaction costs, including sales charges (loads) on Fund purchases; and - - Ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses. The following table shows ongoing costs of investing in the Fund and can help you understand these costs and compare them with those of other mutual funds. The table assumes a $1,000 investment held for the six months indicated. ACTUAL FUND EXPENSES The first line (Actual) for each share class listed in the table provides actual account values and expenses. The "Ending Account Value" is derived from the Fund's actual return, which includes the effect of Fund expenses. You can estimate the expenses you paid during the period by following these steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS ILLUSTRATION: 1. Divide your account value by $1,000. IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6. 2. Multiply the result by the number under the heading "Expenses Paid During Period." IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50. In this illustration, the estimated expenses paid this period are $64.50. HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS Information in the second line (Hypothetical) for each class in the table can help you compare ongoing costs of investing in the Fund with those of other mutual funds. This information may not be used to estimate the actual ending account balance or expenses you paid during the period. The hypothetical "Ending Account Value" is based on the actual expense ratio for each class and an assumed 5% annual rate of return before expenses, which does not represent the Fund's actual return. The figure under the heading "Expenses Paid During Period" shows the hypothetical expenses your account would have incurred under this scenario. You can compare this figure with the 5% hypothetical examples that appear in shareholder reports of other funds. Annual Report | 33 Your Fund's Expenses (CONTINUED) PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES. Therefore, the second line for each class is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transaction costs were included, your total costs would have been higher. Please refer to the Fund prospectus for additional information on operating expenses.
BEGINNING ENDING EXPENSES PAID EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* DURING PERIOD** CLASS A 7/1/09 12/31/09 7/1/09-12/31/09 7/1/09-12/31/09 - ------- ------------- ------------- --------------- --------------- Actual $1,000 $1,196.50 $2.77 $ 7.53 Hypothetical (5% return before expenses) $1,000 $1,022.68 $2.55 $ 6.92 CLASS B Actual $1,000 $1,192.90 $6.85 $11.61 Hypothetical (5% return before expenses) $1,000 $1,018.95 $6.31 $10.66 CLASS C Actual $1,000 $1,193.00 $6.91 $11.66 Hypothetical (5% return before expenses) $1,000 $1,018.90 $6.36 $10.71 CLASS R Actual $1,000 $1,195.70 $4.15 $ 8.91 Hypothetical (5% return before expenses) $1,000 $1,021.42 $3.82 $ 8.19 ADVISOR CLASS Actual $1,000 $1,198.70 $1.39 $ 6.15 Hypothetical (5% return before expenses) $1,000 $1,023.95 $1.28 $ 5.65
* Expenses are calculated using the most recent six-month expense ratio excluding expenses of the underlying funds, net of expense waivers, annualized for each class (A: 0.50%; B: 1.24%; C: 1.25%; R: 0.75%; and Advisor: 0.25%), multiplied by the average account value over the period, multiplied by 184/365 to reflect the one-half year period. A portion of the Fund's expenses have been paid by the underlying funds in which the Fund invests. ** Expenses are calculated using the most recent six-month expense ratio including expenses of the underlying funds, net of expense waivers, annualized for each class (A: 1.36%; B: 2.10%; C: 2.11%; R: 1.61%; and Advisor: 1.11%), multiplied by the average account value over the period, multiplied by 184/365 to reflect the one-half year period. A portion of the Fund's expenses have been paid by the underlying funds in which the Fund invests. 34 | Annual Report Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND
YEAR ENDED DECEMBER 31, ------------------------------------------------------- CLASS A 2009 2008 2007 2006 2005 - ------- -------- -------- -------- -------- -------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year .................. $ 10.92 $ 13.59 $ 13.33 $ 12.74 $ 12.48 -------- -------- -------- -------- -------- Income from investment operations(a): Net investment income(b, c) ...................... 0.25 0.39 0.48 0.41 0.29 Net realized and unrealized gains (losses) ....... 1.87 (2.44) 0.60 0.84 0.29 -------- -------- -------- -------- -------- Total from investment operations .................... 2.12 (2.05) 1.08 1.25 0.58 -------- -------- -------- -------- -------- Less distributions from: Net investment income ............................ (0.24) (0.38) (0.47) (0.42) (0.32) Net realized gains ............................... (0.08) (0.24) (0.35) (0.24) -- -------- -------- -------- -------- -------- Total distributions ................................. (0.32) (0.62) (0.82) (0.66) (0.32) -------- -------- -------- -------- -------- Redemption fees(d) .................................. -- --(e) --(e) --(e) --(e) -------- -------- -------- -------- -------- Net asset value, end of year ........................ $ 12.72 $ 10.92 $ 13.59 $ 13.33 $ 12.74 ======== ======== ======== ======== ======== Total return(f) ..................................... 19.67% (15.41)% 8.29% 9.92% 4.70% RATIOS TO AVERAGE NET ASSETS Expenses before waiver and payments by affiliates(g) ................................. 0.56% 0.65% 0.68% 0.69% 0.73% Expenses net of waiver and payments by affiliates(g) ................................. 0.50% 0.51% 0.49% 0.50% 0.69% Net investment income(c) ............................ 2.15% 3.18% 3.52% 3.09% 2.31% SUPPLEMENTAL DATA Net assets, end of year (000's) ..................... $443,376 $282,769 $251,570 $194,477 $162,079 Portfolio turnover rate ............................. 11.48% 4.84% 8.11% 11.08% 8.16%
(a) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (b) Based on average daily shares outstanding. (c) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (d) Effective September 1, 2008, the redemption fee was eliminated. (e) Amount rounds to less than $0.01 per share. (f) Total return does not reflect sales commissions or contingent deferred sales charges, if applicable. (g) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.71% for the year ended December 31, 2009. The accompanying notes are an integral part of these financial statements. Annual Report | 35 Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND
YEAR ENDED DECEMBER 31, ---------------------------------------------- CLASS B 2009 2008 2007 2006 2005 - ------- ------ ------- ------ ------ ------ PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year .................. $10.88 $ 13.55 $13.29 $12.71 $12.46 ------ ------- ------ ------ ------ Income from investment operations(a): Net investment income(b, c) ...................... 0.16 0.30 0.36 0.30 0.19 Net realized and unrealized gains (losses) ....... 1.87 (2.44) 0.61 0.84 0.29 ------ ------- ------ ------ ------ Total from investment operations .................... 2.03 (2.14) 0.97 1.14 0.48 ------ ------- ------ ------ ------ Less distributions from: Net investment income ............................ (0.15) (0.29) (0.36) (0.32) (0.23) Net realized gains ............................... (0.08) (0.24) (0.35) (0.24) -- ------ ------- ------ ------ ------ Total distributions ................................. (0.23) (0.53) (0.71) (0.56) (0.23) ------ ------- ------ ------ ------ Redemption fees(d) .................................. -- --(e) --(e) --(e) --(e) ------ ------- ------ ------ ------ Net asset value, end of year ........................ $12.68 $ 10.88 $13.55 $13.29 $12.71 ====== ======= ====== ====== ====== Total return(f) ...................................... 18.85% (16.02)% 7.42% 9.05% 3.87% RATIOS TO AVERAGE NET ASSETS Expenses before waiver and payments by affiliates(g) ................................. 1.31% 1.40% 1.43% 1.44% 1.48% Expenses net of waiver and payments by affiliates(g) ................................. 1.25% 1.26% 1.24% 1.25% 1.44% Net investment income(c)............................. 1.40% 2.43% 2.77% 2.34% 1.56% SUPPLEMENTAL DATA Net assets, end of year (000's) ..................... $8,591 $ 7,150 $6,497 $6,422 $6,202 Portfolio turnover rate ............................. 11.48% 4.84% 8.11% 11.08% 8.16%
(a) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (b) Based on average daily shares outstanding. (c) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (d) Effective September 1, 2008, the redemption fee was eliminated. (e) Amount rounds to less than $0.01 per share. (f) Total return does not reflect sales commissions or contingent deferred sales charges, if applicable. (g) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.71% for the year ended December 31, 2009. The accompanying notes are an integral part of these financial statements. 36 | Annual Report Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND
YEAR ENDED DECEMBER 31, ----------------------------------------------------- CLASS C 2009 2008 2007 2006 2005 - ------- -------- -------- -------- ------- ------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year .................. $ 10.77 $ 13.42 $ 13.18 $ 12.60 $ 12.36 -------- -------- -------- ------- ------- Income from investment operations(a): Net investment income(b, c) ...................... 0.16 0.30 0.38 0.30 0.19 Net realized and unrealized gains (losses) ....... 1.85 (2.41) 0.58 0.85 0.28 -------- -------- -------- ------- ------- Total from investment operations .................... 2.01 (2.11) 0.96 1.15 0.47 -------- -------- -------- ------- ------- Less distributions from: Net investment income ............................ (0.16) (0.30) (0.37) (0.33) (0.23) Net realized gains ............................... (0.08) (0.24) (0.35) (0.24) -- -------- -------- -------- ------- ------- Total distributions ................................. (0.24) (0.54) (0.72) (0.57) (0.23) -------- -------- -------- ------- ------- Redemption fees(d) .................................. -- --(e) --(e) --(e) --(e) -------- -------- -------- ------- ------- Net asset value, end of year ........................ $ 12.54 $ 10.77 $ 13.42 $ 13.18 $ 12.60 ======== ======== ======== ======= ======= Total return(f) ..................................... 18.84% (16.04)% 7.48% 9.16% 3.83% RATIOS TO AVERAGE NET ASSETS Expenses before waiver and payments by affiliates(g) ................................. 1.30% 1.39% 1.43% 1.43% 1.47% Expenses net of waiver and payments by affiliates(g) ................................. 1.24% 1.25% 1.24% 1.24% 1.43% Net investment income(c)............................. 1.41% 2.44% 2.77% 2.35% 1.57% SUPPLEMENTAL DATA Net assets, end of year (000's) ..................... $253,622 $152,773 $110,914 $76,018 $63,298 Portfolio turnover rate ............................. 11.48% 4.84% 8.11% 11.08% 8.16%
(a) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (b) Based on average daily shares outstanding. (c) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (d) Effective September 1, 2008, the redemption fee was eliminated. (e) Amount rounds to less than $0.01 per share. (f) Total return does not reflect sales commissions or contingent deferred sales charges, if applicable. (g) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.71% for the year ended December 31, 2009. The accompanying notes are an integral part of these financial statements. Annual Report | 37 Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND
YEAR ENDED DECEMBER 31, ----------------------------------------------------- CLASS R 2009 2008 2007 2006 2005 - ------- ------- ------- ------- ------- ------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year .................... $ 10.89 $ 13.55 $ 13.30 $ 12.71 $ 12.46 ------- ------- ------- ------- ------- Income from investment operations(a): Net investment income(b, c) ........................ 0.23 0.37 0.47 0.37 0.26 Net realized and unrealized gains (losses) ......... 1.86 (2.44) 0.57 0.85 0.28 ------- ------- ------- ------- ------- Total from investment operations ...................... 2.09 (2.07) 1.04 1.22 0.54 ------- ------- ------- ------- ------- Less distributions from: Net investment income .............................. (0.21) (0.35) (0.44) (0.39) (0.29) Net realized gains ................................. (0.08) (0.24) (0.35) (0.24) -- ------- ------- ------- ------- ------- Total distributions ................................... (0.29) (0.59) (0.79) (0.63) (0.29) ------- ------- ------- ------- ------- Redemption fees(d) .................................... -- --(e) --(e) --(e) --(e) ------- ------- ------- ------- ------- Net asset value, end of year .......................... $ 12.69 $ 10.89 $ 13.55 $ 13.30 $ 12.71 ======= ======= ======= ======= ======= Total return(f) ....................................... 19.45% (15.58)% 7.91% 9.73% 4.37% RATIOS TO AVERAGE NET ASSETS Expenses before waiver and payments by affiliates(g) .. 0.81% 0.90% 0.93% 0.94% 0.98% Expenses net of waiver and payments by affiliates(g) .. 0.75% 0.76% 0.74% 0.75% 0.94% Net investment income(c) .............................. 1.90% 2.93% 3.27% 2.84% 2.06% SUPPLEMENTAL DATA Net assets, end of year (000's) ....................... $59,184 $29,466 $25,476 $14,490 $14,112 Portfolio turnover rate ............................... 11.48% 4384% 8.11% 11.08% 8.16%
(a) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (b) Based on average daily shares outstanding. (c) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (d) Effective September 1, 2008, the redemption fee was eliminated. (e) Amount rounds to less than $0.01 per share. (f) Total return does not reflect sales commissions or contingent deferred sales charges, if applicable. (g) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.71% for the year ended December 31, 2009. The accompanying notes are an integral part of these financial statements. 38 | Annual Report Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND
YEAR ENDED DECEMBER 31, --------------------------------------------------- ADVISOR CLASS 2009 2008 2007 2006 2005(a) - ------------- ------- ------- ------ ------ ------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year .................... $ 10.91 $ 13.57 $13.31 $12.72 $12.81 ------- ------- ------ ------ ------ Income from investment operations(b): Net investment income(c, d) ........................ 0.30 0.45 0.53 0.45 0.07 Net realized and unrealized gains (losses) ......... 1.85 (2.46) 0.58 0.83 0.02 ------- ------- ------ ------ ------ Total from investment operations ...................... 2.15 (2.01) 1.11 1.28 0.09 ------- ------- ------ ------ ------ Less distributions from: Net investment income .............................. (0.27) (0.41) (0.50) (0.45) (0.18) Net realized gains ................................. (0.08) (0.24) (0.35) (0.24) -- ------- ------- ------ ------ ------ Total distributions ................................... (0.35) (0.65) (0.85) (0.69) (0.18) ------- ------- ------ ------ ------ Redemption fees(e) .................................... -- --(f) --(f) --(f) --(f) ------- ------- ------ ------ ------ Net asset value, end of year .......................... $ 12.71 $ 10.91 $13.57 $13.31 $12.72 ======= ======= ====== ====== ====== Total return(g) ....................................... 19.97% (15.15)% 8.48% 10.28% 0.68% RATIOS TO AVERAGE NET ASSETS(h) Expenses before waiver and payments by affiliates(i) .. 0.31% 0.40% 0.43% 0.44% 0.48% Expenses net of waiver and payments by affiliates(i) .. 0.25% 0.26% 0.24% 0.25% 0.44% Net investment income(d) .............................. 2.40% 3.43% 3.77% 3.34% 2.56% SUPPLEMENTAL DATA Net assets, end of year (000's) ....................... $10,627 $ 4,307 $3,536 $1,726 $ 753 Portfolio turnover rate ............................... 11.48% 4.84% 8.11% 11.08% 8.16%
(a) For the period December 1, 2005 (effective date) to December 31, 2005. (b) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (c) Based on average daily shares outstanding. (d) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (e) Effective September 1, 2008, the redemption fee was eliminated. (f) Amount rounds to less than $0.01 per share. (g) Total return is not annualized for periods less than one year. (h) Ratios are annualized for periods less than one year. (i) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.71% for the year ended December 31, 2009. The accompanying notes are an integral part of these financial statements. Annual Report | 39 Franklin Templeton Fund Allocator Series STATEMENT OF INVESTMENTS, DECEMBER 31, 2009
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND SHARES VALUE ------------------------------------------- ----------- ------------ INVESTMENTS IN UNDERLYING FUNDS(a) DOMESTIC EQUITY 30.0% (b) Franklin Flex Cap Growth Fund, Advisor Class ...................... 2,009,530 $ 84,360,079 (b) Franklin Growth Opportunities Fund, Advisor Class ................. 1,839,114 34,906,392 Franklin MicroCap Value Fund, Advisor Class ....................... 575,855 15,548,097 Franklin Natural Resources Fund, Advisor Class .................... 461,977 15,208,281 (b) Franklin Small Cap Growth Fund, Advisor Class ..................... 1,599,055 14,439,470 Franklin Utilities Fund, Advisor Class ............................ 973,080 11,034,722 Mutual Shares Fund, Class Z ....................................... 2,965,617 56,910,197 ------------ 232,407,238 ------------ DOMESTIC FIXED INCOME 22.9% Franklin Total Return Fund, Advisor Class ......................... 8,148,576 78,307,814 Franklin U.S. Government Securities Fund, Advisor Class ........... 14,886,390 99,143,357 ------------ 177,451,171 ------------ FOREIGN EQUITY 13.1% Franklin Gold and Precious Metals Fund, Advisor Class ............. 404,391 16,660,925 Mutual European Fund, Class Z ..................................... 1,720,522 35,081,435 Templeton China World Fund, Advisor Class ......................... 486,823 16,712,617 Templeton Foreign Fund, Advisor Class ............................. 5,125,112 33,210,728 ------------ 101,665,705 ------------ FOREIGN FIXED INCOME 14.3% Franklin Templeton Emerging Market Debt Opportunities Fund ........ 1,096,744 12,009,346 Templeton Global Bond Fund, Advisor Class ......................... 7,774,593 98,659,586 ------------ 110,668,932 ------------ TOTAL INVESTMENTS IN UNDERLYING FUNDS BEFORE SHORT TERM INVESTMENTS (COST $565,470,917) 80.3% .................................... 622,193,046 ------------ SHORT TERM INVESTMENTS (COST $152,256,461) 19.6% MONEY MARKET FUNDS 19.6% (c) Institutional Fiduciary Trust Money Market Portfolio, 0.00% ....... 152,256,461 152,256,461 ------------ TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $717,727,378) 99.9% ... 774,449,507 OTHER ASSETS, LESS LIABILITIES 0.1% ............................... 951,018 ------------ NET ASSETS 100.0% ................................................. $775,400,525 ============
(a) See Note 6 regarding investments in Underlying Funds. (b) Non-income producing. (c) The rate shown is the annualized seven-day yield at period end. The accompanying notes are an integral part of these financial statements. 40 | Annual Report Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS FRANKLIN TEMPLETON MODERATE TARGET FUND
YEAR ENDED DECEMBER 31, ---------------------------------------------------------- CLASS A 2009 2008 2007 2006 2005 - ------- -------- -------- -------- -------- -------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year .................... $ 10.67 $ 14.35 $ 14.03 $ 13.14 $ 12.69 -------- -------- -------- -------- -------- Income from investment operations(a): Net investment income(b, c) ........................ 0.25 0.35 0.43 0.35 0.25 Net realized and unrealized gains (losses) ......... 2.35 (3.31) 0.87 1.15 0.50 -------- -------- -------- -------- -------- Total from investment operations ...................... 2.60 (2.96) 1.30 1.50 0.75 -------- -------- -------- -------- -------- Less distributions from: Net investment income .............................. (0.24) (0.35) (0.43) (0.38) (0.30) Net realized gains ................................. (0.10) (0.37) (0.55) (0.23) -- -------- -------- -------- -------- -------- Total distributions ................................... (0.34) (0.72) (0.98) (0.61) (0.30) -------- -------- -------- -------- -------- Redemption fees(d) .................................... -- --(e) --(e) --(e) --(e) -------- -------- -------- -------- -------- Net asset value, end of year .......................... $ 12.93 $ 10.67 $ 14.35 $ 14.03 $ 13.14 ======== ======== ======== ======== ======== Total return(f) ....................................... 24.68% (21.22)% 9.40% 11.57% 5.94% RATIOS TO AVERAGE NET ASSETS Expenses before waiver and payments by affiliates(g) .. 0.57% 0.68% 0.68% 0.70% 0.74% Expenses net of waiver and payments by affiliates(g) .. 0.50% 0.52% 0.50% 0.50% 0.69% Net investment income(c) .............................. 2.19% 2.74% 2.92% 2.56% 1.93% SUPPLEMENTAL DATA Net assets, end of year (000's) ....................... $755,399 $476,415 $491,451 $401,392 $316,754 Portfolio turnover rate 13.71% 7.29% 10.29% 9.40% 10.59%
(a) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (b) Based on average daily shares outstanding. (c) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (d) Effective September 1, 2008, the redemption fee was eliminated. (e) Amount rounds to less than $0.01 per share. (f) Total return does not reflect sales commissions or contingent deferred sales charges, if applicable. (g) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.78% for the year ended December 31, 2009. The accompanying notes are an integral part of these financial statements. Annual Report | 41 Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN TEMPLETON MODERATE TARGET FUND
YEAR ENDED DECEMBER 31, ----------------------------------------------------- CLASS B 2009 2008 2007 2006 2005 - ------- ------- ------- ------- ------- ------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year .................... $ 10.64 $ 14.31 $ 13.99 $ 13.10 $ 12.66 ------- ------- ------- ------- ------- Income from investment operations(a): Net investment income(b, c) ........................ 0.16 0.25 0.31 0.24 0.15 Net realized and unrealized gains (losses) ......... 2.34 (3.30) 0.88 1.15 0.50 ------- ------- ------- ------- ------- Total from investment operations ...................... 2.50 (3.05) 1.19 1.39 0.65 ------- ------- ------- ------- ------- Less distributions from: Net investment income .............................. (0.16) (0.25) (0.32) (0.27) (0.21) Net realized gains ................................. (0.10) (0.37) (0.55) (0.23) -- ------- ------- ------- ------- ------- Total distributions ................................... (0.26) (0.62) (0.87) (0.50) (0.21) ------- ------- ------- ------- ------- Redemption fees(d) .................................... -- --(e) --(e) --(e) --(e) ------- ------- ------- ------- ------- Net asset value, end of year .......................... $ 12.88 $ 10.64 $ 14.31 $ 13.99 $ 13.10 ======= ======= ======= ======= ======= Total return(f) ....................................... 23.65% (21.80)% 8.61% 10.70% 5.18% RATIOS TO AVERAGE NET ASSETS Expenses before waiver and payments by affiliates(g) .. 1.32% 1.43% 1.43% 1.45% 1.49% Expenses net of waiver and payments by affiliates(g) .. 1.25% 1.27% 1.25% 1.25% 1.44% Net investment income(c) .............................. 1.44% 1.99% 2.17% 1.81% 1.18% SUPPLEMENTAL DATA Net assets, end of year (000's) ....................... $14,448 $11,060 $12,445 $11,533 $10,170 Portfolio turnover rate ............................... 13.71% 7.29% 10.29% 9.40% 10.59%
(a) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (b) Based on average daily shares outstanding. (c) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (d) Effective September 1, 2008, the redemption fee was eliminated. (e) Amount rounds to less than $0.01 per share. (f) Total return does not reflect sales commissions or contingent deferred sales charges, if applicable. (g) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.78% for the year ended December 31, 2009. The accompanying notes are an integral part of these financial statements. 42 | Annual Report Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN TEMPLETON MODERATE TARGET FUND
YEAR ENDED DECEMBER 31, ---------------------------------------------------------- CLASS C 2009 2008 2007 2006 2005 - ------- -------- -------- -------- -------- -------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year .................... $ 10.47 $ 14.11 $ 13.81 $ 12.94 $ 12.50 -------- -------- -------- -------- -------- Income from investment operations(a): Net investment income(b, c) ........................ 0.17 0.25 0.31 0.24 0.15 Net realized and unrealized gains (losses) ......... 2.30 (3.26) 0.87 1.13 0.50 -------- -------- -------- -------- -------- Total from investment operations ...................... 2.47 (3.01) 1.18 1.37 0.65 -------- -------- -------- -------- -------- Less distributions from: Net investment income .............................. (0.16) (0.26) (0.33) (0.27) (0.21) Net realized gains ................................. (0.10) (0.37) (0.55) (0.23) -- -------- -------- -------- -------- -------- Total distributions ................................... (0.26) (0.63) (0.88) (0.50) (0.21) -------- -------- -------- -------- -------- Redemption fees(d) .................................... -- --(e) --(e) --(e) --(e) -------- -------- -------- -------- -------- Net asset value, end of year .......................... $ 12.68 $ 10.47 $ 14.11 $ 13.81 $ 12.94 ======== ======== ======== ======== ======== Total return(f) ....................................... 23.82% (21.87)% 8.61% 10.72% 5.25% RATIOS TO AVERAGE NET ASSETS Expenses before waiver and payments by affiliates(g) .. 1.32% 1.43% 1.43% 1.45% 1.48% Expenses net of waiver and payments by affiliates(g) .. 1.25% 1.27% 1.25% 1.25% 1.43% Net investment income(c) .............................. 1.44% 1.99% 2.17% 1.81% 1.19% SUPPLEMENTAL DATA Net assets, end of year (000's) ....................... $303,794 $164,355 $160,563 $134,465 $112,294 Portfolio turnover rate ............................... 13.71% 7.29% 10.29% 9.40% 10.59%
(a) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (b) Based on average daily shares outstanding. (c) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (d) Effective September 1, 2008, the redemption fee was eliminated. (e) Amount rounds to less than $0.01 per share. (f) Total return does not reflect sales commissions or contingent deferred sales charges, if applicable. (g) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.78% for the year ended December 31, 2009. The accompanying notes are an integral part of these financial statements. Annual Report | 43 Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN TEMPLETON MODERATE TARGET FUND
YEAR ENDED DECEMBER 31, ------------------------------------------------------- CLASS R 2009 2008 2007 2006 2005 - ------- -------- ------- ------- ------- ------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year ........................ $ 10.64 $ 14.32 $ 14.00 $ 13.11 $ 12.66 -------- ------- ------- ------- ------- Income from investment operations(a): Net investment income(b,c) ............................. 0.23 0.33 0.39 0.31 0.21 Net realized and unrealized gains (losses) ............. 2.34 (3.32) 0.88 1.15 0.51 -------- ------- ------- ------- ------- Total from investment operations .......................... 2.57 (2.99) 1.27 1.46 0.72 -------- ------- ------- ------- ------- Less distributions from: Net investment income .................................. (0.22) (0.32) (0.40) (0.34) (0.27) Net realized gains ..................................... (0.10) (0.37) (0.55) (0.23) -- -------- ------- ------- ------- ------- Total distributions ....................................... (0.32) (0.69) (0.95) (0.57) (0.27) -------- ------- ------- ------- ------- Redemption fees(d) ........................................ -- --(e) --(e) --(e) --(e) -------- ------- ------- ------- ------- Net asset value, end of year .............................. $ 12.89 $ 10.64 $ 14.32 $ 14.00 $ 13.11 ======== ======= ======= ======= ======= Total return(f) ........................................... 24.37% (21.45)% 9.16% 11.27% 5.73% RATIOS TO AVERAGE NET ASSETS Expenses before waiver and payments by affiliates(g) ...... 0.82% 0.93% 0.93% 0.95% 0.99% Expenses net of waiver and payments by affiliates(g) ...... 0.75% 0.77% 0.75% 0.75% 0.94% Net investment income(c) .................................. 1.94% 2.49% 2.67% 2.31% 1.68% SUPPLEMENTAL DATA Net assets, end of year (000's) ........................... $101,575 $47,009 $40,102 $31,719 $30,403 Portfolio turnover rate ................................... 13.71% 7.29% 10.29% 9.40% 10.59%
(a) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (b) Based on average daily shares outstanding. (c) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (d) Effective September 1, 2008, the redemption fee was eliminated. (e) Amount rounds to less than $0.01 per share. (f) Total return does not reflect sales commissions or contingent deferred sales charges, if applicable. (g) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.78% for the year ended December 31, 2009. The accompanying notes are an integral part of these financial statements. 44 | Annual Report Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN TEMPLETON MODERATE TARGET FUND
YEAR ENDED DECEMBER 31, ---------------------------------------------------- ADVISOR CLASS 2009 2008 2007 2006 2005(a) - ------------- ------- -------- ------ ------ ------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year ........................ $ 10.67 $ 14.35 $14.03 $13.15 $13.23 ------- ------- ------ ------ ------ Income from investment operations(b): Net investment income(c,d) ............................. 0.30 0.40 0.46 0.40 0.08 Net realized and unrealized gains (losses) ............. 2.33 (3.33) 0.88 1.13 0.02 ------- ------- ------ ------ ------ Total from investment operations .......................... 2.63 (2.93) 1.34 1.53 0.10 ------- ------- ------ ------ ------ Less distributions from: Net investment income .................................. (0.27) (0.38) (0.47) (0.42) (0.18) Net realized gains ..................................... (0.10) (0.37) (0.55) (0.23) -- ------- ------- ------ ------ ------ Total distributions ....................................... (0.37) (0.75) (1.02) (0.65) (0.18) ------- ------- ------ ------ ------ Redemption fees(e) ........................................ -- --(f) --(f) --(f) --(f) ------- ------- ------ ------ ------ Net asset value, end of year .............................. $ 12.93 $ 10.67 $14.35 $14.03 $13.15 ======= ======= ====== ====== ====== Total return(g) ........................................... 24.97% (21.02)% 9.66% 11.87% 0.68% RATIOS TO AVERAGE NET ASSETS(h) Expenses before waiver and payments by affiliates(i) ...... 0.32% 0.43% 0.43% 0.45% 0.49% Expenses net of waiver and payments by affiliates(i) ...... 0.25% 0.27% 0.25% 0.25% 0.44% Net investment income(d) .................................. 2.44% 2.99% 3.17% 2.81% 2.18% SUPPLEMENTAL DATA Net assets, end of year (000's) ........................... $27,944 $11,489 $9,699 $7,071 $3,890 Portfolio turnover rate ................................... 13.71% 7.29% 10.29% 9.40% 10.59%
(a) For the period December 1, 2005 (effective date) to December 31, 2005. (b) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (c) Based on average daily shares outstanding. (d) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (e) Effective September 1, 2008, the redemption fee was eliminated. (f) Amount rounds to less than $0.01 per share. (g) Total return is not annualized for periods less than one year. (h) Ratios are annualized for periods less than one year. (i) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.78% for the year ended December 31, 2009. The accompanying notes are an integral part of these financial statements. Annual Report | 45 Franklin Templeton Fund Allocator Series STATEMENT OF INVESTMENTS, DECEMBER 31, 2009
FRANKLIN TEMPLETON MODERATE TARGET FUND SHARES VALUE --------------------------------------- ----------- -------------- INVESTMENTS IN UNDERLYING FUNDS(a) DOMESTIC EQUITY 40.7% (b)Franklin Flex Cap Growth Fund, Advisor Class ................................ 4,133,387 $ 173,519,569 (b)Franklin Growth Opportunities Fund, Advisor Class ........................... 4,097,021 77,761,458 Franklin MicroCap Value Fund, Advisor Class ................................. 1,212,279 32,731,528 Franklin Natural Resources Fund, Advisor Class .............................. 928,539 30,567,498 (b)Franklin Small Cap Growth Fund, Advisor Class ............................... 3,346,288 30,216,978 Franklin Utilities Fund, Advisor Class ...................................... 2,277,761 25,829,811 Mutual Shares Fund, Class Z ................................................. 6,221,784 119,396,039 -------------- 490,022,881 -------------- DOMESTIC FIXED INCOME 19.7% Franklin Total Return Fund, Advisor Class ................................... 10,766,015 103,461,409 Franklin U.S. Government Securities Fund, Advisor Class ..................... 20,075,360 133,701,897 -------------- 237,163,306 -------------- FOREIGN EQUITY 17.7% Franklin Gold and Precious Metals Fund, Advisor Class ....................... 854,370 35,200,064 Mutual European Fund, Class Z ............................................... 3,691,504 75,269,767 Templeton China World Fund, Advisor Class ................................... 1,007,126 34,574,635 Templeton Foreign Fund, Advisor Class ....................................... 10,368,964 67,190,887 -------------- 212,235,353 -------------- FOREIGN FIXED INCOME 12.2% Franklin Templeton Emerging Market Debt Opportunities Fund .................. 1,471,971 16,118,083 Templeton Global Bond Fund, Advisor Class ................................... 10,313,694 130,880,773 -------------- 146,998,856 -------------- TOTAL INVESTMENTS IN UNDERLYING FUNDS BEFORE SHORT TERM INVESTMENTS (COST $972,239,331) 90.3% ................................................ 1,086,420,396 -------------- SHORT TERM INVESTMENTS (COST $116,690,476) 9.7% MONEY MARKET FUNDS 9.7% (c)Institutional Fiduciary Trust Money Market Portfolio, 0.00% ................. 116,690,476 116,690,476 -------------- TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $1,088,929,807) 100.0% .......... 1,203,110,872 OTHER ASSETS, LESS LIABILITIES 0.0%(d) ...................................... 50,618 -------------- NET ASSETS 100.0% ........................................................... $1,203,161,490 ==============
(a) See Note 6 regarding investments in Underlying Funds. (b) Non-income producing. (c) The rate shown is the annualized seven-day yield at period end. (d) Rounds to less than 0.1% of net assets. The accompanying notes are an integral part of these financial statements. 46 | Annual Report Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS FRANKLIN TEMPLETON GROWTH TARGET FUND
YEAR ENDED DECEMBER 31, ------------------------------------------------------------ CLASS A 2009 2008 2007 2006 2005 - ------- -------- -------- -------- -------- -------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year ..................... $ 10.48 $ 16.17 $ 15.63 $ 14.10 $ 13.17 -------- -------- -------- -------- -------- Income from investment operations(a): Net investment income(b,c) .......................... 0.20 0.19 0.32 0.24 0.14 Net realized and unrealized gains (losses) .......... 3.04 (5.00) 1.31 1.73 0.96 -------- -------- -------- -------- -------- Total from investment operations ....................... 3.24 (4.81) 1.63 1.97 1.10 -------- -------- -------- -------- -------- Less distributions from: Net investment income and short term gains received from Underlying Funds ............................ (0.21) (0.22) (0.32) (0.32) (0.17) Net realized gains .................................. --(d) (0.66) (0.77) (0.12) -- -------- -------- -------- -------- -------- Total distributions .................................... (0.21) (0.88) (1.09) (0.44) (0.17) -------- -------- -------- -------- -------- Redemption fees(e) ..................................... -- --(d) --(d) --(d) --(d) -------- -------- -------- -------- -------- Net asset value, end of year ........................... $ 13.51 $ 10.48 $ 16.17 $ 15.63 $ 14.10 ======== ======== ======== ======== ======== Total return(f) ........................................ 31.08% (30.75)% 10.58% 13.90% 8.47% RATIOS TO AVERAGE NET ASSETS Expenses before waiver and payments by affiliates(g) ... 0.62% 0.76% 0.74% 0.75% 0.79% Expenses net of waiver and payments by affiliates(g) ... 0.50% 0.51% 0.50% 0.50% 0.72% Net investment income(c) ............................... 1.72% 1.43% 1.93% 1.59% 1.07% SUPPLEMENTAL DATA Net assets, end of year (000's) ........................ $398,288 $283,111 $394,689 $319,521 $230,686 Portfolio turnover rate ................................ 16.55% 8.87% 10.36% 9.31% 10.50%
(a) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (b) Based on average daily shares outstanding. (c) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (d) Amount rounds to less than $0.01 per share. (e) Effective September 1, 2008, the redemption fee was eliminated. (f) Total return does not reflect sales commissions or contingent deferred sales charges, if applicable. (g) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.86% for the year ended December 31, 2009. The accompanying notes are an integral part of these financial statements. Annual Report | 47 Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN TEMPLETON GROWTH TARGET FUND
YEAR ENDED DECEMBER 31, --------------------------------------------------- CLASS B 2009 2008 2007 2006 2005 - ------- ------ ------- ------ ------ ------ PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year ..................... $10.32 $ 15.91 $15.45 $13.97 $13.09 ------ ------- ------ ------ ------ Income from investment operations(a): Net investment income(b,c) .......................... 0.11 0.09 0.17 0.12 0.04 Net realized and unrealized gains (losses) .......... 2.98 (4.90) 1.31 1.72 0.96 ------ ------- ------ ------ ------ Total from investment operations ....................... 3.09 (4.81) 1.48 1.84 1.00 ------ ------- ------ ------ ------ Less distributions from: Net investment income and short term gains received from Underlying Funds ............................ (0.13) (0.12) (0.25) (0.24) (0.12) Net realized gains .................................. --(d) (0.66) (0.77) (0.12) -- ------ ------- ------ ------ ------ Total distributions .................................... (0.13) (0.78) (1.02) (0.36) (0.12) ------ ------- ------ ------ ------ Redemption fees(e) ..................................... -- --(d) --(d) --(d) --(d) ------ ------- ------ ------ ------ Net asset value, end of year ........................... $13.28 $ 10.32 $15.91 $15.45 $13.97 ====== ======= ====== ====== ====== Total return(f) ........................................ 30.05% (31.24)% 9.76% 13.06% 7.63% RATIOS TO AVERAGE NET ASSETS Expenses before waiver and payments by affiliates(g) ... 1.36% 1.51% 1.49% 1.50% 1.54% Expenses net of waiver and payments by affiliates(g) ... 1.24% 1.26% 1.25% 1.25% 1.47% Net investment income(c) ............................... 0.98% 0.68% 1.18% 0.84% 0.32% SUPPLEMENTAL DATA Net assets, end of year (000's) ........................ $8,271 $ 6,261 $8,292 $8,195 $6,468 Portfolio turnover rate ................................ 16.55% 8.87% 10.36% 9.31% 10.50%
(a) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (b) Based on average daily shares outstanding. (c) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (d) Amount rounds to less than $0.01 per share. (e) Effective September 1, 2008, the redemption fee was eliminated. (f) Total return does not reflect sales commissions or contingent deferred sales charges, if applicable. (g) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.86% for the year ended December 31, 2009. The accompanying notes are an integral part of these financial statements. 48 | Annual Report Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN TEMPLETON GROWTH TARGET FUND
YEAR ENDED DECEMBER 31, ----------------------------------------------------------- CLASS C 2009 2008 2007 2006 2005 - ------- -------- -------- -------- -------- ------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year ..................... $ 10.31 $ 15.90 $ 15.44 $ 13.97 $ 13.09 -------- -------- -------- -------- ------- Income from investment operations(a): Net investment income(b,c) .......................... 0.11 0.09 0.19 0.13 0.04 Net realized and unrealized gains (losses) .......... 2.99 (4.90) 1.29 1.70 0.96 -------- -------- -------- -------- ------- Total from investment operations ....................... 3.10 (4.81) 1.48 1.83 1.00 -------- -------- -------- -------- ------- Less distributions from: Net investment income and short term gains received from Underlying Funds ............................ (0.13) (0.12) (0.25) (0.24) (0.12) Net realized gains .................................. --(d) (0.66) (0.77) (0.12) -- -------- -------- -------- -------- ------- Total distributions .................................... (0.13) (0.78) (1.02) (0.36) (0.12) -------- -------- -------- -------- ------- Redemption fees(e) ..................................... -- --(d) --(d) --(d) --(d) -------- -------- -------- -------- ------- Net asset value, end of year ........................... $ 13.28 $ 10.31 $ 15.90 $ 15.44 $ 13.97 ======== ======== ======== ======== ======= Total return(f) ........................................ 30.19% (31.26)% 9.72% 13.08% 7.63% RATIOS TO AVERAGE NET ASSETS Expenses before waiver and payments by affiliates(g) ... 1.37% 1.51% 1.49% 1.50% 1.54% Expenses net of waiver and payments by affiliates(g) ... 1.25% 1.26% 1.25% 1.25% 0.47% Net investment income(c) ............................... 0.97% 0.68% 1.18% 0.84% 0.32% SUPPLEMENTAL DATA Net assets, end of year (000's) ........................ $153,267 $106,379 $145,218 $122,156 $88,986 Portfolio turnover rate ................................ 16.55% 8.87% 10.36% 9.31% 10.50%
(a) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (b) Based on average daily shares outstanding. (c) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (d) Amount rounds to less than $0.01 per share. (e) Effective September 1, 2008, the redemption fee was eliminated. (f) Total return does not reflect sales commissions or contingent deferred sales charges, if applicable. (g) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.86% for the year ended December 31, 2009. The accompanying notes are an integral part of these financial statements. Annual Report | 49 Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN TEMPLETON GROWTH TARGET FUND
YEAR ENDED DECEMBER 31, ------------------------------------------------------- 2009 2008 2007 2006 2005 ------- ------- ------- ------- ------- CLASS R PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year ..................... $ 10.38 $ 16.02 $ 15.52 $ 14.02 $ 13.11 ------- ------- ------- ------- ------- Income from investment operations(a): Net investment income(b,c) .......................... 0.19 0.17 0.29 0.20 0.11 Net realized and unrealized gains (losses) .......... 3.00 (4.96) 1.28 1.71 0.95 ------- ------- ------- ------- ------- Total from investment operations ....................... 3.19 (4.79) 1.57 1.91 1.06 ------- ------- ------- ------- ------- Less distributions from: Net investment income and short term gains received from Underlying Funds ............................ (0.19) (0.19) (0.30) (0.29) (0.15) Net realized gains .................................. --(d) (0.66) (0.77) (0.12) -- ------- ------- ------- ------- ------- Total distributions .................................... (0.19) (0.85) (1.07) (0.41) (0.15) ------- ------- ------- ------- ------- Redemption fees(e) ..................................... -- --(d) --(d) --(d) --(d) ------- ------- ------- ------- ------- Net asset value, end of year ........................... $ 13.38 $ 10.38 $ 16.02 $ 15.52 $ 14.02 ======= ======= ======= ======= ======= Total return(f) ........................................ 30.87% (30.92)% 10.31% 13.65% 8.10% RATIOS TO AVERAGE NET ASSETS Expenses before waiver and payments by affiliates(g) ... 0.87% 1.01% 0.99% 1.00% 1.04% Expenses net of waiver and payments by affiliates(g) ... 0.75% 0.76% 0.75% 0.75% 0.97% Net investment income(c) ............................... 1.47% 1.18% 1.68% 1.34% 0.82% SUPPLEMENTAL DATA Net assets, end of year (000's) ........................ $68,599 $35,485 $36,757 $26,215 $19,461 Portfolio turnover rate ................................ 16.55% 8.87% 10.36% 9.31% 10.50%
(a) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (b) Based on average daily shares outstanding. (c) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (d) Amount rounds to less than $0.01 per share. (e) Effective September 1, 2008, the redemption fee was eliminated. (f) Total return does not reflect sales commissions or contingent deferred sales charges, if applicable. (g) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.86% for the year ended December 31, 2009. The accompanying notes are an integral part of these financial statements. 50 | Annual Report Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN TEMPLETON GROWTH TARGET FUND
YEAR ENDED DECEMBER 31, ----------------------------------------------------- 2009 2008 2007 2006 2005(a) ------- ------- ------ ------ ------- ADVISOR CLASS PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year ..................... $ 10.49 $ 16.19 $15.64 $14.10 $14.18 ------- ------- ------ ------ ------ Income from investment operations(b): Net investment income(c,d) .......................... 0.24 0.27 0.38 0.29 0.11 Net realized and unrealized gains (losses) .......... 3.04 (5.06) 1.29 1.72 (0.03) ------- ------- ------ ------ ------ Total from investment operations ....................... 3.28 (4.79) 1.67 2.01 0.08 ------- ------- ------ ------ ------ Less distributions from: Net investment income and short term gains received from Underlying Funds ............................ (0.24) (0.25) (0.35) (0.35) (0.16) Net realized gains .................................. --(e) (0.66) (0.77) (0.12) -- ------- ------- ------ ------ ------ Total distributions .................................... (0.24) (0.91) (1.12) (0.47) (0.16) ------- ------- ------ ------ ------ Redemption fees(f) ..................................... -- --(e) --(e) --(e) --(e) ------- ------- ------ ------ ------ Net asset value, end of year ........................... $ 13.53 $ 10.49 $16.19 $15.64 $14.10 ======= ======= ====== ====== ====== Total return(g) ........................................ 31.43% (30.56)% 10.80% 14.26% 0.54% RATIOS TO AVERAGE NET ASSETS(h) Expenses before waiver and payments by affiliates(i) ... 0.37% 0.51% 0.49% 0.50% 0.54% Expenses net of waiver and payments by affiliates(i) ... 0.25% 0.26% 0.25% 0.25% 0.47% Net investment income(d) ............................... 1.97% 1.68% 2.18% 1.84% 1.32% SUPPLEMENTAL DATA Net assets, end of year (000's) ........................ $18,994 $11,059 $9,917 $5,593 $3,320 Portfolio turnover rate ................................ 16.55% 8.87% 10.36% 9.31% 10.50%
(a) For the period December 1, 2005 (effective date) to December 31, 2005. (b) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (c) Based on average daily shares outstanding. (d) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (e) Amount rounds to less than $0.01 per share. (f) Effective September 1, 2008, the redemption fee was eliminated. (g) Total return is not annualized for periods less than one year. (h) Ratios are annualized for periods less than one year. (i) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.86% for the year ended December 31, 2009. The accompanying notes are an integral part of these financial statements. Annual Report | 51 Franklin Templeton Fund Allocator Series STATEMENT OF INVESTMENTS, DECEMBER 31, 2009
FRANKLIN TEMPLETON GROWTH TARGET FUND SHARES VALUE ------------------------------------- ---------- ------------ INVESTMENTS IN UNDERLYING FUNDS(a) DOMESTIC EQUITY 56.9% (b)Franklin Flex Cap Growth Fund, Advisor Class .............................. 3,119,847 $130,971,162 (b)Franklin Growth Opportunities Fund, Advisor Class ......................... 2,979,100 56,543,310 Franklin MicroCap Value Fund, Advisor Class ............................... 900,508 24,313,713 Franklin Natural Resources Fund, Advisor Class ............................ 731,516 24,081,498 (b)Franklin Small Cap Growth Fund, Advisor Class ............................. 2,534,271 22,884,470 Franklin Utilities Fund, Advisor Class .................................... 1,585,356 17,977,932 Mutual Shares Fund, Class Z ............................................... 4,787,405 91,870,307 ------------ 368,642,392 ------------ DOMESTIC FIXED INCOME 8.4% Franklin Total Return Fund, Advisor Class ................................. 2,537,365 24,384,076 Franklin U.S. Government Securities Fund, Advisor Class ................... 4,489,641 29,901,009 ------------ 54,285,085 ------------ FOREIGN EQUITY 24.7% Franklin Gold and Precious Metals Fund, Advisor Class ..................... 710,067 29,254,771 Mutual European Fund, Class Z ............................................. 2,697,277 54,997,474 Templeton China World Fund, Advisor Class ................................. 743,060 25,509,251 Templeton Foreign Fund, Advisor Class ..................................... 7,739,305 50,150,699 ------------ 159,912,195 ------------ FOREIGN FIXED INCOME 5.4% Franklin Templeton Emerging Market Debt Opportunities Fund ................ 363,113 3,976,091 Templeton Global Bond Fund, Advisor Class ................................. 2,415,480 30,652,443 ------------ 34,628,534 ------------ TOTAL INVESTMENTS IN UNDERLYING FUNDS BEFORE SHORT TERM INVESTMENTS (COST $556,164,774) 95.4% .............................................. 617,468,206 ------------ SHORT TERM INVESTMENTS (COST $31,270,842) 4.8% MONEY MARKET FUNDS 4.8% (c)Institutional Fiduciary Trust Money Market Portfolio, 0.00% ............... 31,270,842 31,270,842 ------------ TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $587,435,616) 100.2% .......... 648,739,048 OTHER ASSETS, LESS LIABILITIES (0.2)% ..................................... (1,321,258) ------------ NET ASSETS 100.0% ......................................................... $647,417,790 ============
(a) See Note 6 regarding investments in Underlying Funds. (b) Non-income producing. (c) The rate shown is the annualized seven-day yield at period end. The accompanying notes are an integral part of these financial statements. 52 | Annual Report Franklin Templeton Fund Allocator Series FINANCIAL STATEMENTS STATEMENTS OF ASSETS AND LIABILITIES December 31, 2009
FRANKLIN FRANKLIN FRANKLIN TEMPLETON TEMPLETON TEMPLETON CONSERVATIVE MODERATE GROWTH TARGET FUND TARGET FUND TARGET FUND ------------ -------------- ------------ Assets: Investments in Underlying Funds: (Note 6) Cost ....................................... $717,727,378 $1,088,929,807 $587,435,616 ------------ -------------- ------------ Value ...................................... $774,449,507 $1,203,110,872 $648,739,048 Receivables: Capital shares sold ........................ 4,948,502 13,259,297 4,336,720 Underlying Funds (Note 7) .................. 68,936 129,603 100,932 Other assets .................................. 75 112 68 ------------ -------------- ------------ Total assets ............................ 779,467,020 1,216,499,884 653,176,768 ------------ -------------- ------------ Liabilities: Payables: Capital shares redeemed .................... 3,074,118 11,902,108 4,862,018 Affiliates ................................. 770,080 1,096,043 625,429 Accrued expenses and other liabilities ........ 222,297 340,243 271,531 ------------ -------------- ------------ Total liabilities ....................... 4,066,495 13,338,394 5,758,978 ------------ -------------- ------------ Net assets, at value ................. $775,400,525 $1,203,161,490 $647,417,790 ------------ -------------- ------------ Net assets consist of: Paid-in capital ............................... $740,671,152 $1,131,360,747 $622,107,823 Undistributed net investment income ........... 213,603 315,344 243,751 Net unrealized appreciation (depreciation) .... 56,722,129 114,181,065 61,303,432 Accumulated net realized gain (loss) .......... (22,206,359) (42,695,666) (36,237,216) ------------ -------------- ------------ Net assets, at value ................. $775,400,525 $1,203,161,490 $647,417,790 ============ ============== ============
The accompanying notes are an integral part of these financial statements. Annual Report | 53 Franklin Templeton Fund Allocator Series FINANCIAL STATEMENTS (CONTINUED) STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED) December 31, 2009
FRANKLIN FRANKLIN FRANKLIN TEMPLETON TEMPLETON TEMPLETON CONSERVATIVE MODERATE GROWTH TARGET FUND TARGET FUND TARGET FUND ------------ ------------ ------------ CLASS A: Net assets, at value ....................................... $443,375,739 $755,399,341 $398,287,986 ------------ ------------ ------------ Shares outstanding ......................................... 34,848,534 58,423,314 29,470,797 ------------ ------------ ------------ Net asset value per share(a) ............................... $ 12.72 $ 12.93 $ 13.51 ------------ ------------ ------------ Maximum offering price per share (net asset value per share / 94.25%) ......................................... $ 13.50 $ 13.72 $ 14.33 ------------ ------------ ------------ CLASS B: Net assets, at value ....................................... $ 8,591,370 $ 14,447,871 $ 8,270,508 ------------ ------------ ------------ Shares outstanding ......................................... 677,351 1,121,316 622,589 ------------ ------------ ------------ Net asset value and maximum offering price per share(a) .... $ 12.68 $ 12.88 $ 13.28 ------------ ------------ ------------ CLASS C: Net assets, at value ....................................... $253,622,188 $303,794,456 $153,266,661 ------------ ------------ ------------ Shares outstanding ......................................... 20,225,419 23,967,903 11,539,840 ------------ ------------ ------------ Net asset value and maximum offering price per share(a) .... $ 12.54 $ 12.68 $ 13.28 ------------ ------------ ------------ CLASS R: Net assets, at value ....................................... $ 59,184,257 $101,575,468 $ 68,598,939 ------------ ------------ ------------ Shares outstanding ......................................... 4,665,316 7,877,923 5,125,943 ------------ ------------ ------------ Net asset value and maximum offering price per share ....... $ 12.69 $ 12.89 $ 13.38 ------------ ------------ ------------ ADVISOR CLASS: Net assets, at value ....................................... $ 10,626,971 $ 27,944,354 $ 18,993,696 ------------ ------------ ------------ Shares outstanding ......................................... 835,852 2,161,284 1,403,537 ------------ ------------ ------------ Net asset value and maximum offering price per share ....... $ 12.71 $ 12.93 $ 13.53 ------------ ------------ ------------
(a) Redemption price is equal to net asset value less contingent deferred sales charges, if applicable. The accompanying notes are an integral part of these financial statements. 54 | Annual Report Franklin Templeton Fund Allocator Series FINANCIAL STATEMENTS (CONTINUED) STATEMENTS OF OPERATIONS for the year ended December 31, 2009
FRANKLIN FRANKLIN FRANKLIN TEMPLETON TEMPLETON TEMPLETON CONSERVATIVE MODERATE GROWTH TARGET FUND TARGET FUND TARGET FUND ------------ ------------ ------------ Investment income: Dividends from Underlying Funds (Note 6) ................. $ 15,828,983 $ 24,111,089 $ 11,486,151 ------------ ------------ ------------ Expenses: Asset allocation fees (Note 3a) .......................... 1,219,851 2,039,208 1,236,940 Distribution fees: (Note 3c) Class A ............................................... 863,713 1,455,312 810,694 Class B ............................................... 74,880 122,601 69,846 Class C ............................................... 1,920,808 2,145,720 1,235,449 Class R ............................................... 213,387 347,724 244,087 Transfer agent fees (Note 3e) ............................ 901,028 1,471,303 1,193,797 Reports to shareholders .................................. 60,748 100,835 74,892 Registration and filing fees ............................. 96,293 99,897 84,257 Professional fees ........................................ 41,177 44,007 36,903 Trustees' fees and expenses .............................. 6,145 9,128 5,479 Other .................................................... 21,071 28,608 18,476 Expenses borne by Underlying Funds (Note 7) .............. (519,852) (937,473) (747,873) ------------ ------------ ------------ Total expenses ..................................... 4,899,249 6,926,870 4,262,947 Expenses waived/paid by affiliates (Note 3f) ....... (337,528) (607,736) (622,545) ------------ ------------ ------------ Net expenses .................................... 4,561,721 6,319,134 3,640,402 ------------ ------------ ------------ Net investment income ........................... 11,267,262 17,791,955 7,845,749 ------------ ------------ ------------ Realized and unrealized gains (losses): Net realized gain (loss) from: Sale of investments in Underlying Funds ............... (20,026,753) (40,432,232) (34,117,209) Realized gain distributions by Underlying Funds ....... 365,866 796,690 635,188 ------------ ------------ ------------ Net realized gain (loss) ........................ (19,660,887) (39,635,542) (33,482,021) ------------ ------------ ------------ Net change in unrealized appreciation (depreciation) on investments in Underlying Funds .................... 116,972,429 222,938,456 168,675,705 ------------ ------------ ------------ Net realized and unrealized gain (loss) ..................... 97,311,542 183,302,914 135,193,684 ------------ ------------ ------------ Net increase (decrease) in net assets resulting from operations ............................................... $108,578,804 $201,094,869 $143,039,433 ============ ============ ============
The accompanying notes are an integral part of these financial statements. Annual Report | 55 Franklin Templeton Fund Allocator Series FINANCIAL STATEMENTS (CONTINUED) STATEMENTS OF CHANGES IN NET ASSETS
FRANKLIN TEMPLETON FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND MODERATE TARGET FUND ---------------------------- ------------------------------- YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, ---------------------------- ------------------------------- 2009 2008 2009 2008 ------------ ------------ -------------- ------------- Increase (decrease) in net assets: Operations: Net investment income ................................. $ 11,267,262 $ 13,249,694 $ 17,791,955 $ 18,213,483 Net realized gain (loss) from Underlying Funds ........ (19,660,887) 2,841,441 (39,635,542) 6,799,917 Net change in unrealized appreciation (depreciation) on investments in Underlying Funds ................. 116,972,429 (94,915,134) 222,938,456 (196,772,246) ------------ ------------ -------------- ------------- Net increase (decrease) in net assets resulting from operations .............................. 108,578,804 (78,823,999) 201,094,869 (171,758,846) ------------ ------------ -------------- ------------- Distributions to shareholders from: Net investment income: Class A ............................................ (7,508,736) (9,093,615) (12,955,129) (14,241,980) Class B ............................................ (99,752) (175,167) (169,874) (248,537) Class C ............................................ (2,891,086) (3,810,306) (3,474,528) (3,721,764) Class R ............................................ (859,679) (869,315) (1,463,437) (1,250,162) Advisor Class ...................................... (187,303) (134,845) (493,631) (346,065) Net realized gains: Class A ............................................ (2,327,944) (5,215,326) (4,682,245) (14,041,188) Class B ............................................ (51,084) (122,096) (100,236) (327,683) Class C ............................................ (1,316,100) (2,743,261) (1,727,548) (4,781,082) Class R ............................................ (279,848) (541,689) (524,368) (1,274,713) Advisor Class ...................................... (40,108) (67,963) (135,129) (281,923) ------------ ------------ -------------- ------------- Total distributions to shareholders ...................... (15,561,640) (22,773,583) (25,726,125) (40,515,097) ------------ ------------ -------------- ------------- Capital share transactions: (Note 2) Class A ............................................ 106,971,049 92,679,878 165,371,309 128,035,233 Class B ............................................ 318,788 2,232,512 997,675 2,045,174 Class C ............................................ 70,599,426 73,404,375 97,697,787 52,799,515 Class R ............................................ 22,902,697 10,284,248 40,611,926 20,814,658 Advisor Class ...................................... 5,126,951 1,455,357 12,786,593 4,642,852 ------------ ------------ -------------- ------------- Total capital share transactions ......................... 205,918,911 180,056,370 317,465,290 208,337,432 ------------ ------------ -------------- ------------- Redemption fees .......................................... -- 12,809 -- 4,916 ------------ ------------ -------------- ------------- Net increase (decrease) in net assets ........... 298,936,075 78,471,597 492,834,034 (3,931,595) Net assets: Beginning of year ........................................ 476,464,450 397,992,853 710,327,456 714,259,051 ------------ ------------ -------------- ------------- End of year .............................................. $775,400,525 $476,464,450 $1,203,161,490 $ 710,327,456 ============ ============ ============== ============= Undistributed net investment income included in net assets: End of year .............................................. $ 213,603 $ 427,455 $ 315,344 $ 929,902 ============ ============ ============== =============
The accompanying notes are an integral part of these financial statements. 56 | Annual Report Franklin Templeton Fund Allocator Series FINANCIAL STATEMENTS (CONTINUED) STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FRANKLIN TEMPLETON GROWTH TARGET FUND ----------------------------- YEAR ENDED DECEMBER 31, ----------------------------- 2009 2008 ------------ ------------- Increase (decrease) in net assets: Operations: Net investment income ................................................. $ 7,845,749 $ 6,496,173 Net realized gain (loss) from Underlying Funds ........................ (33,482,021) 177,061 Net change in unrealized appreciation (depreciation) on investments in Underlying Funds ................................................... 168,675,705 (197,001,270) ------------ ------------- Net increase (decrease) in net assets resulting from operations .... 143,039,433 (190,328,036) ------------ ------------- Distributions to shareholders from: Net investment income and short term gains received from Underlying Funds: Class A ............................................................... (6,002,040) (5,761,341) Class B ............................................................... (79,879) (72,932) Class C ............................................................... (1,424,386) (1,258,031) Class R ............................................................... (893,237) (646,134) Advisor Class ......................................................... (311,608) (257,043) Net realized gains: Class A ............................................................... (133,986) (16,500,974) Class B ............................................................... (2,919) (368,168) Class C ............................................................... (51,562) (6,340,529) Class R ............................................................... (18,681) (1,770,767) Advisor Class ......................................................... (5,668) (434,667) ------------ ------------- Total distributions to shareholders ......................................... (8,923,966) (33,410,586) ------------ ------------- Capital share transactions: (Note 2) Class A ............................................................... 31,296,337 34,252,033 Class B ............................................................... 192,275 1,172,839 Class C ............................................................... 14,915,770 16,176,377 Class R ............................................................... 20,371,264 14,662,480 Advisor Class ......................................................... 4,233,458 4,892,287 ------------ ------------- Total capital share transactions ............................................ 71,009,104 71,156,016 ------------ ------------- Redemption fees ............................................................. -- 2,223 ------------ ------------- Net increase (decrease) in net assets .............................. 205,124,571 (152,580,383) Net assets: Beginning of year ........................................................ 442,293,219 594,873,602 ------------ ------------- End of year .............................................................. $647,417,790 $ 442,293,219 ============ ============= Undistributed net investment income included in net assets: End of year .............................................................. $ 243,751 $ 981,391 ============ =============
The accompanying notes are an integral part of these financial statements. Annual Report | 57 Franklin Templeton Fund Allocator Series NOTES TO FINANCIAL STATEMENTS 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Franklin Templeton Fund Allocator Series (Trust) is registered under the Investment Company Act of 1940, as amended, (1940 Act) as an open-end investment company, consisting of ten separate funds, three of which are included in this report (Funds). The financial statements of the remaining funds in the Trust are presented separately. The Funds invest primarily in Franklin Templeton mutual funds (Underlying Funds). The Funds offer five classes of shares: Class A, Class B, Class C, Class R, and Advisor Class. Each class of shares differs by its initial sales load, contingent deferred sales charges, distribution fees, voting rights on matters affecting a single class and its exchange privilege. The following summarizes the Funds' significant accounting policies. A. SECURITY VALUATION Net asset value per share is calculated as of the close of trading of the NYSE. Investments in the Underlying Funds are valued at their closing net asset value each trading day. B. INCOME TAXES No provision has been made for U.S. income taxes because it is each fund's policy to qualify as a regulated investment company under the Internal Revenue Code and to distribute to shareholders substantially all of its taxable income and net realized gains. The Funds have reviewed the tax positions, taken on federal income tax returns, for each of the three open tax years and as of December 31, 2009, and have determined that no provision for income tax is required in the Funds' financial statements. C. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS Security transactions are accounted for on trade date. Realized gains and losses on security transactions are determined on a specific identification basis. Estimated expenses are accrued daily. Dividend income and realized gain distributions by Underlying Funds are recorded on the ex-dividend date. Distributions to shareholders are recorded on the ex-dividend date and are determined according to income tax regulations (tax basis). Distributable earnings determined on a tax basis may differ from earnings recorded in accordance with accounting principles generally accepted in the United States of America. These differences may be permanent or temporary. Permanent differences are reclassified among capital accounts to reflect their tax character. These reclassifications have no impact on net assets or the results of operations. Temporary differences are not reclassified, as they may reverse in subsequent periods. 58 | Annual Report Franklin Templeton Fund Allocator Series NOTES TO FINANCIAL STATEMENTS (CONTINUED) 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) C. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS (CONTINUED) Common expenses incurred by the Trust are allocated among the funds based on the ratio of net assets of each fund to the combined net assets of the Trust. Fund specific expenses are charged directly to the fund that incurred the expense. The Funds indirectly bear their proportionate share of expenses from the Underlying Funds. Since the Underlying Funds have varied expense levels and the Funds may own different proportions of the Underlying Funds at different times, the amount of expenses incurred indirectly by the Funds will vary. Realized and unrealized gains and losses and net investment income, not including class specific expenses, are allocated daily to each class of shares based upon the relative proportion of net assets of each class. Differences in per share distributions, by class, are generally due to differences in class specific expenses. D. ACCOUNTING ESTIMATES The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the amounts of income and expenses during the reporting period. Actual results could differ from those estimates. E. REDEMPTION FEES A short term trading redemption fee was imposed, with some exceptions, on any fund shares that were redeemed or exchanged within seven calendar days following their purchase date. The redemption fee was 2% of the amount redeemed. Such fees were retained by the funds and accounted for as an addition to paid-in capital. Effective September 1, 2008, the redemption fee was eliminated. F. GUARANTEES AND INDEMNIFICATIONS Under the Trust's organizational documents, its officers and trustees are indemnified by the Trust against certain liabilities arising out of the performance of their duties to the Trust. Additionally, in the normal course of business, the Trust, on behalf of the Funds, enters into contracts with service providers that contain general indemnification clauses. The Trust's maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Trust that have not yet occurred. Currently, the Trust expects the risk of loss to be remote. Annual Report | 59 Franklin Templeton Fund Allocator Series NOTES TO FINANCIAL STATEMENTS (CONTINUED) 2. SHARES OF BENEFICIAL INTEREST At December 31, 2009, there were an unlimited number of shares authorized (without par value). Transactions in the Funds' shares were as follows:
FRANKLIN TEMPLETON FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND MODERATE TARGET FUND -------------------------- --------------------------- SHARES AMOUNT SHARES AMOUNT ---------- ------------- ---------- ------------- CLASS A SHARES: Year ended December 31, 2009 Shares sold .................... 17,172,635 $ 201,914,915 26,240,519 $ 307,600,865 Shares issued in reinvestment of distributions ............... 751,135 8,952,829 1,412,572 16,855,743 Shares redeemed ................ (8,976,351) (103,896,695) (13,873,127) (159,085,299) ---------- ------------- ----------- ------------- Net increase (decrease) ........ 8,947,419 $ 106,971,049 13,779,964 $ 165,371,309 ========== ============= =========== ============= Year ended December 31, 2008 Shares sold .................... 15,568,306 $ 190,953,863 19,698,628 $ 242,960,356 Shares issued in reinvestment of distributions ............... 1,088,389 13,016,234 2,242,119 27,400,727 Shares redeemed ................ (9,272,012) (111,290,219) (11,533,860) (142,325,850) ---------- ------------- ----------- ------------- Net increase (decrease) ........ 7,384,683 $ 92,679,878 10,406,887 $ 128,035,233 ========== ============= =========== ============= CLASS B SHARES: Year ended December 31, 2009 Shares sold .................... 267,360 $ 3,131,147 381,520 $ 4,393,323 Shares issued in reinvestment of distributions ............... 11,110 131,573 21,652 256,702 Shares redeemed ................ (257,949) (2,943,932) (321,593) (3,652,350) ---------- ------------- ---------- ------------- Net increase (decrease) ........ 20,521 $ 318,788 81,579 $ 997,675 ========== ============= =========== ============= Year ended December 31, 2008 Shares sold .................... 386,978 $ 4,705,293 439,730 $ 5,372,790 Shares issued in reinvestment of distributions ............... 21,263 252,962 44,191 537,722 Shares redeemed ................ (231,042) (2,725,743) (313,835) (3,865,338) ---------- ------------- ----------- ------------- Net increase (decrease) ........ 177,199 $ 2,232,512 170,086 $ 2,045,174 ========== ============= =========== ============= CLASS C SHARES: Year ended December 31, 2009 Shares sold .................... 10,203,701 $ 117,884,377 12,247,985 $ 141,937,134 Shares issued in reinvestment of distributions ............... 311,086 3,656,958 402,476 4,735,596 Shares redeemed ................ (4,475,784) (50,941,909) (4,374,031) (48,974,943) ---------- ------------- ----------- ------------- Net increase (decrease) ........ 6,039,003 $ 70,599,426 8,276,430 $ 97,697,787 ========== ============= =========== ============= Year ended December 31, 2008 Shares sold .................... 9,143,048 $ 111,410,003 7,246,871 $ 88,052,929 Shares issued in reinvestment of distributions ............... 485,398 5,720,049 641,662 7,691,753 Shares redeemed ................ (3,708,346) (43,725,677) (3,579,060) (42,945,167) ---------- ------------- ----------- ------------- Net increase (decrease) ........ 5,920,100 $ 73,404,375 4,309,473 $ 52,799,515 ========== ============= =========== =============
60 | Annual Report Franklin Templeton Fund Allocator Series NOTES TO FINANCIAL STATEMENTS (CONTINUED) 2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
FRANKLIN TEMPLETON FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND MODERATE TARGET FUND -------------------------- --------------------------- SHARES AMOUNT SHARES AMOUNT ---------- ------------- ----------- ------------- CLASS R SHARES: Year ended December 31, 2009 Shares sold .................... 3,189,920 $ 37,666,834 5,038,649 $ 58,878,618 Shares issued in reinvestment of distributions ............... 88,948 1,060,448 160,513 1,924,057 Shares redeemed ................ (1,319,654) (15,824,585) (1,737,405) (20,190,749) ---------- ------------- ----------- ------------- Net increase (decrease) ........ 1,959,214 $ 22,902,697 3,461,757 $ 40,611,926 ========== ============= =========== ============= Year ended December 31, 2008 Shares sold .................... 1,459,923 $ 18,062,085 2,991,280 $ 37,361,989 Shares issued in reinvestment of distributions ............... 113,747 1,356,174 202,851 2,464,649 Shares redeemed ................ (747,198) (9,134,011) (1,577,937) (19,011,980) ---------- ------------- ----------- ------------- Net increase (decrease) ........ 826,472 $ 10,284,248 1,616,194 $ 20,814,658 ========== ============= =========== ============= ADVISOR CLASS SHARES: Year ended December 31, 2009 Shares sold .................... 671,018 $ 7,795,493 1,356,321 $ 15,928,497 Shares issued in reinvestment of distributions ............... 15,518 184,528 45,310 540,649 Shares redeemed ................ (245,606) (2,853,070) (316,992) (3,682,553) ---------- ------------- ----------- ------------- Net increase (decrease) ........ 440,930 $ 5,126,951 1,084,639 $ 12,786,593 ========== ============= =========== ============= Year ended December 31, 2008 Shares sold .................... 257,955 $ 2,902,039 495,708 $ 5,839,904 Shares issued in reinvestment of distributions ............... 16,949 201,287 51,803 626,829 Shares redeemed ................ (140,537) (1,647,969) (146,513) (1,823,881) ---------- ------------- ----------- ------------- Net increase (decrease) ........ 134,367 $ 1,455,357 400,998 $ 4,642,852 ========== ============= =========== =============
FRANKLIN TEMPLETON GROWTH TARGET FUND -------------------------- SHARES AMOUNT ---------- ------------- CLASS A SHARES: Year ended December 31, 2009 Shares sold ..................................... 8,815,446 $ 104,177,953 Shares issued in reinvestment of distributions .. 461,206 5,925,832 Shares redeemed ................................. (6,814,913) (78,807,448) ---------- ------------- Net increase (decrease) ......................... 2,461,739 $ 31,296,337 ========== ============= Year ended December 31, 2008 Shares sold ..................................... 8,614,981 $ 114,733,064 Shares issued in reinvestment of distributions .. 1,667,657 21,595,931 Shares redeemed ................................. (7,689,195) (102,076,962) ---------- ------------- Net increase (decrease) ......................... 2,593,443 $ 34,252,033 ========== =============
Annual Report | 61 Franklin Templeton Fund Allocator Series NOTES TO FINANCIAL STATEMENTS (CONTINUED) 2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
FRANKLIN TEMPLETON GROWTH TARGET FUND ------------------------- SHARES AMOUNT ---------- ------------ CLASS B SHARES: Year ended December 31, 2009 Shares sold ..................................... 125,137 $ 1,403,321 Shares issued in reinvestment of distributions .. 6,510 80,379 Shares redeemed ................................. (115,777) (1,291,425) ---------- ------------ Net increase (decrease) ......................... 15,870 $ 192,275 ========== ============ Year ended December 31, 2008 Shares sold ..................................... 169,541 $ 2,246,202 Shares issued in reinvestment of distributions .. 32,101 421,308 Shares redeemed ................................. (116,215) (1,494,671) ---------- ------------ Net increase (decrease) ......................... 85,427 $ 1,172,839 ========== ============ CLASS C SHARES: Year ended December 31, 2009 Shares sold ..................................... 3,264,850 $ 37,713,863 Shares issued in reinvestment of distributions .. 109,242 1,361,437 Shares redeemed ................................. (2,148,668) (24,159,530) ---------- ------------ Net increase (decrease) ......................... 1,225,424 $ 14,915,770 ========== ============ Year ended December 31, 2008 Shares sold ..................................... 3,113,955 $ 41,358,304 Shares issued in reinvestment of distributions .. 526,370 6,908,111 Shares redeemed ................................. (2,459,694) (32,090,038) ---------- ------------ Net increase (decrease) ......................... 1,180,631 $ 16,176,377 ========== ============ CLASS R SHARES: Year ended December 31, 2009 Shares sold ..................................... 2,751,299 $ 32,690,947 Shares issued in reinvestment of distributions .. 70,466 899,880 Shares redeemed ................................. (1,113,624) (13,219,563) ---------- ------------ Net increase (decrease) ......................... 1,708,141 $ 20,371,264 ========== ============ Year ended December 31, 2008 Shares sold ..................................... 2,125,306 $ 28,652,652 Shares issued in reinvestment of distributions .. 185,467 2,367,456 Shares redeemed ................................. (1,186,756) (16,357,628) ---------- ------------ Net increase (decrease) ......................... 1,124,017 $ 14,662,480 ========== ============ ADVISOR CLASS SHARES: Year ended December 31, 2009 Shares sold ..................................... 664,936 $ 7,875,082 Shares issued in reinvestment of distributions .. 23,381 301,931 Shares redeemed ................................. (338,833) (3,943,555) ---------- ------------ Net increase (decrease) ......................... 349,484 $ 4,233,458 ========== ============ Year ended December 31, 2008 Shares sold ..................................... 529,385 $ 6,071,746 Shares issued in reinvestment of distributions .. 55,379 690,032 Shares redeemed ................................. (143,400) (1,869,491) ---------- ------------ Net increase (decrease) ......................... 441,364 4,892,287 ========== ============
62 | Annual Report Franklin Templeton Fund Allocator Series NOTES TO FINANCIAL STATEMENTS (CONTINUED) 3. TRANSACTIONS WITH AFFILIATES Franklin Resources, Inc. is the holding company for various subsidiaries that together are referred to as Franklin Templeton Investments. Certain officers and trustees of the Trust are also officers and/or directors/trustees of certain of the Underlying Funds and of the following subsidiaries:
SUBSIDIARY AFFILIATION - ---------- ----------- Franklin Advisers, Inc. (Advisers) Investment manager Franklin Templeton Services, LLC (FT Services) Administrative manager Franklin Templeton Distributors, Inc. (Distributors) Principal underwriter Franklin Templeton Investor Services, LLC (Investor Services) Transfer agent
A. ASSET ALLOCATION FEES The Funds pay an asset allocation fee to Advisers of 0.25% per year of the average daily net assets of each of the Funds for investment advisory services, consisting principally of determining the allocation of assets of the Funds among the designated Underlying Funds. B. ADMINISTRATIVE FEES Under an agreement with Advisers, FT Services provides administrative services to the Funds. The fee is paid by Advisers based on average daily net assets, and is not an additional expense of the Funds. C. DISTRIBUTION FEES The Trust's Board of Trustees has adopted distribution plans for each share class, with the exception of Advisor Class shares, pursuant to Rule 12b-1 under the 1940 Act. Under the Funds' Class A reimbursement distribution plans, the Funds reimburse Distributors for costs incurred in connection with the servicing, sale and distribution of each fund's shares up to the maximum annual plan rate. Under the Class A reimbursement distribution plans, costs exceeding the maximum for the current plan year cannot be reimbursed in subsequent periods. In addition, under the Funds' Class B, C and R compensation distribution plans, the Funds pay Distributors for costs incurred in connection with the servicing, sale and distribution of each fund's shares up to the maximum annual plan rate for each class. The maximum annual plan rates, based on the average daily net assets, for each class, are as follows: Class A ... 0.25% Class B ... 1.00% Class C ... 1.00% Class R ... 0.50%
Annual Report | 63 Franklin Templeton Fund Allocator Series NOTES TO FINANCIAL STATEMENTS (CONTINUED) 3. TRANSACTIONS WITH AFFILIATES (CONTINUED) D. SALES CHARGES/UNDERWRITING AGREEMENTS Distributors has advised the Funds of the following commission transactions related to the sales and redemptions of the Funds' shares for the year:
FRANKLIN FRANKLIN FRANKLIN TEMPLETON TEMPLETON TEMPLETON CONSERVATIVE MODERATE GROWTH TARGET FUND TARGET FUND TARGET FUND ------------ ----------- ----------- Sales charges retained net of commissions paid to unaffiliated broker/dealers ............................................ $535,609 $893,026 $297,151 Contingent deferred sales charges retained ................... $ 36,634 $ 41,281 $ 18,148
E. TRANSFER AGENT FEES For the year ended December 31, 2009, the Funds paid transfer agent fees as noted in the Statements of Operations of which the following amounts were retained by Investor Services:
FRANKLIN FRANKLIN FRANKLIN TEMPLETON TEMPLETON TEMPLETON CONSERVATIVE MODERATE GROWTH TARGET FUND TARGET FUND TARGET FUND ------------ ----------- ----------- Transfer agent fees ... $443,017 $745,749 $651,267
F. WAIVER AND EXPENSE REIMBURSEMENTS Advisers has contractually agreed in advance to waive or limit its fees and to assume as its own expense certain expenses otherwise payable by the Funds so that the common expenses (i.e. a combination of asset allocation fees and other expenses, but excluding distribution fees and acquired fund fees and expenses) for each class of the Funds do not exceed 0.25% (other than certain non-routine expenses or costs, including those relating to litigation, indemnification, reorganizations, and liquidations) until April 30, 2010. Prior to May 1, 2009, the common expenses and acquired fund fees and expenses were limited to 0.93%, 1.00% and 1.07% for the Franklin Templeton Conservative Target Fund, Franklin Templeton Moderate Target Fund and Franklin Templeton Growth Target Fund, respectively. (1) Prior to May 1, 2009, expense waiver included the annualized weighted average expense ratio of the Underlying Funds. 4. INCOME TAXES For tax purposes, capital losses may be carried over to offset future capital gains, if any. At December 31, 2009, the capital loss carryforwards were as follows:
FRANKLIN FRANKLIN FRANKLIN TEMPLETON TEMPLETON TEMPLETON CONSERVATIVE MODERATE GROWTH TARGET FUND TARGET FUND TARGET FUND ------------ ----------- ----------- Capital loss carryforwards expiring in: 2017 ........................................ $16,090,583 $29,854,100 $31,802,912
64 | Annual Report Franklin Templeton Fund Allocator Series NOTES TO FINANCIAL STATEMENTS (CONTINUED) 4. INCOME TAXES (CONTINUED) The tax character of distributions paid during the years ended December 31, 2009 and 2008, was as follows:
FRANKLIN TEMPLETON FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND MODERATE TARGET FUND -------------------------- ------------------------- 2009 2008 2009 2008 ------------ ----------- ----------- ----------- Distributions paid from: Ordinary income ............ $11,553,492 $14,083,248 $18,557,470 $19,808,519 Long term capital gain ..... 4,008,148 8,690,335 7,168,655 20,706,578 ----------- ----------- ----------- ----------- $15,561,640 $22,773,583 $25,726,125 $40,515,097 =========== =========== =========== ===========
FRANKLIN TEMPLETON GROWTH TARGET FUND -------------------------- 2009 2008 ------------ ----------- Distributions paid from: Ordinary income ............ $8,712,906 $ 7,995,480 Long term capital gain ..... 211,060 25,415,106 ---------- ----------- $8,923,966 $33,410,586 ========== ===========
At December 31, 2009, the cost of investments, net unrealized appreciation (depreciation) and undistributed ordinary income for income tax purposes were as follows:
FRANKLIN FRANKLIN FRANKLIN TEMPLETON TEMPLETON TEMPLETON CONSERVATIVE MODERATE GROWTH TARGET FUND TARGET FUND TARGET FUND ------------ -------------- ------------ Cost of investments ......................... $723,843,156 $1,101,771,376 $591,869,922 ============ ============== ============ Unrealized appreciation ..................... $ 54,926,244 $ 112,253,757 $ 76,982,091 Unrealized depreciation ..................... (4,319,893) (10,914,261) (20,112,965) ------------ -------------- ------------ Net unrealized appreciation (depreciation) .. $ 50,606,351 $ 101,339,496 $ 56,869,126 ============ ============== ============ Distributable earnings - undistributed ordinary income ............ $ 213,603 $ 315,344 $ 243,751 ============ ============== ============
Net investment income differs for financial statement and tax purposes primarily due to differing treatment of short term capital gains distributions from Underlying Funds. Net realized gains (losses) differ for financial statement and tax purposes primarily due to differing treatments of wash sales and short term capital gains distributions from Underlying Funds. Annual Report | 65 Franklin Templeton Fund Allocator Series NOTES TO FINANCIAL STATEMENTS (CONTINUED) 5. INVESTMENT TRANSACTIONS Purchases and sales of Underlying Funds (excluding short term securities) for the year ended December 31, 2009, were as follows:
FRANKLIN FRANKLIN FRANKLIN TEMPLETON TEMPLETON TEMPLETON CONSERVATIVE MODERATE GROWTH TARGET FUND TARGET FUND TARGET FUND ------------ ------------ ------------ Purchases ... $203,099,587 $392,151,105 $144,754,988 Sales ....... $ 54,846,112 $110,830,753 $ 81,480,860
6. INVESTMENTS IN UNDERLYING FUNDS The Funds invest primarily in the Underlying Funds which are managed by Advisers (or an affiliate of Advisers). The Funds do not invest in the Underlying Funds for the purpose of exercising management or control. At December 31, 2009, the Funds held the following positions which exceed 5% of the Underlying Funds' shares outstanding:
NAME OF ISSUER % OF SHARES HELD - -------------- ---------------- FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND Franklin Templeton Emerging Market Debt Opportunities Fund ... 10.89% Franklin Growth Opportunities Fund ........................... 7.71% FRANKLIN TEMPLETON MODERATE TARGET FUND Franklin Growth Opportunities Fund ........................... 17.17% Franklin Templeton Emerging Market Debt Opportunities Fund ... 14.61% Franklin MicroCap Value Fund ................................. 9.83% Franklin Small Cap Growth Fund ............................... 8.93% Franklin Flex Cap Growth Fund ................................ 5.66% FRANKLIN TEMPLETON GROWTH TARGET FUND Franklin Growth Opportunities Fund ........................... 12.49% Franklin MicroCap Value Fund ................................. 7.30% Franklin Small Cap Growth Fund ............................... 6.76%
The Funds may invest in the Institutional Fiduciary Trust Money Market Portfolio (Sweep Money Fund), an open-end investment company managed by Advisers. Pursuant to a SEC exemptive order specific to the Funds' investment in the Sweep Money Fund, asset allocation fees are reduced on assets invested in the Sweep Money Fund, in an amount not to exceed the management and administrative fees paid by the Sweep Money Fund. 7. SPECIAL SERVICING AGREEMENT On May 1, 2009, the Funds entered into a Special Servicing Agreement (SSA) with the Underlying Funds and certain service providers of the Funds and of the Underlying Funds. Under the SSA, 66 | Annual Report Franklin Templeton Fund Allocator Series NOTES TO FINANCIAL STATEMENTS (CONTINUED) 7. SPECIAL SERVICING AGREEMENT (CONTINUED) each Underlying Fund may pay a portion of the Funds' expenses (other than any asset allocation, administrative, and distribution fees) to the extent such payments are less than the amount of the benefits realized or expected to be realized by the Underlying Fund (e.g., due to reduced costs associated with servicing accounts) from the investment in the Underlying Fund by the Funds. The amount of expenses allocated during the year ended December 31, 2009 is noted in the Statements of Operations. 8. CREDIT FACILITY The Funds, together with other U.S. registered and foreign investment funds (collectively "Borrowers"), managed by Franklin Templeton Investments, are borrowers in a joint syndicated senior unsecured credit facility totaling $725 million (Global Credit Facility) to provide a source of funds to the Borrowers for temporary and emergency purposes, including the ability to meet future unanticipated or unusually large redemption requests. Effective January 22, 2010, the Funds renewed the Global Credit Facility, for a total of $750 million, maturing January 21, 2011. Under the terms of the Global Credit Facility, the Funds shall, in addition to interest charged on any borrowings made by the Funds and other costs incurred by the Funds, pay their share of fees and expenses incurred in connection with the implementation and maintenance of the Global Credit Facility, based upon their relative share of the aggregate net assets of all of the Borrowers, including an annual commitment fee of 0.10% based upon the unused portion of the Global Credit Facility, which is reflected in other expenses on the Statements of Operations. During the year ended December 31, 2009, the Funds did not utilize the Global Credit Facility. 9. FAIR VALUE MEASUREMENTS The Trust follows a fair value hierarchy that distinguishes between market data obtained from independent sources (observable inputs) and the Trust's own market assumptions (unobservable inputs). These inputs are used in determining the value of the Funds' investments and are summarized in the following fair value hierarchy: - Level 1 - quoted prices in active markets for identical securities - Level 2 - other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speed, credit risk, etc.) - Level 3 - significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments) The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities. Annual Report | 67 Franklin Templeton Fund Allocator Series NOTES TO FINANCIAL STATEMENTS (CONTINUED) 9. FAIR VALUE MEASUREMENTS (CONTINUED) At December 31, 2009, all of the Funds' investments in Underlying Funds carried at fair value were in Level 1 inputs. For detailed Underlying Fund categories, see the accompanying Statements of Investments. 10. NEW ACCOUNTING PRONOUNCEMENTS In January 2010, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) No. 2010-6, FAIR VALUE MEASUREMENTS AND DISCLOSURES (TOPIC 820): IMPROVING DISCLOSURES ABOUT FAIR VALUE MEASUREMENTS. ASU No. 2010-6 enhances and clarifies existing fair value measurement disclosure requirements and is effective for interim and annual periods beginning after December 15, 2009. The Trust is currently evaluating the impact, if any, of applying the provisions of ASU No. 2010-6. 11. SUBSEQUENT EVENTS The Funds have evaluated subsequent events through February 15, 2010, the issuance date of the financial statements and determined that no events have occurred that require disclosure. 68 | Annual Report Franklin Templeton Fund Allocator Series REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF FRANKLIN TEMPLETON FUND ALLOCATOR SERIES In our opinion, the accompanying statements of assets and liabilities, including the statements of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Franklin Templeton Conservative Target Fund, Franklin Templeton Moderate Target Fund and Franklin Templeton Growth Target Fund (separate portfolios of Franklin Templeton Allocator Series, hereafter referred to as the "Funds") at December 31, 2009, the results of each of their operations for the year then ended, the changes in each of their net assets for each of the two years in the period then ended and the financial highlights for the periods presented, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of investments in the Underlying Funds at December 31, 2009 by correspondence with the transfer agent of the Underlying Funds, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP San Francisco, California February 15, 2010 Annual Report | 69 Franklin Templeton Fund Allocator Series TAX DESIGNATION (UNAUDITED) Under Section 852(b)(3)(C) of the Internal Revenue Code (Code), the Funds designate the maximum amount allowable but no less than the following amounts as long term capital gain dividends for the fiscal year ended December 31, 2009:
FRANKLIN FRANKLIN FRANKLIN TEMPLETON TEMPLETON TEMPLETON CONSERVATIVE MODERATE GROWTH TARGET FUND TARGET FUND TARGET FUND - ------------ ----------- ----------- $4,008,148 $7,168,655 $211,060
Under Section 854(b)(2) of the Code, the Funds designate the following percentage amounts of the ordinary income dividends as income qualifying for the dividends received deduction for the fiscal year ended December 31, 2009:
FRANKLIN FRANKLIN FRANKLIN TEMPLETON TEMPLETON TEMPLETON CONSERVATIVE MODERATE GROWTH TARGET FUND TARGET FUND TARGET FUND - ------------ ----------- ----------- 8.12% 10.51% 17.50%
Under Section 854(b)(2) of the Code, the Funds designate the maximum amount allowable but no less than the following amounts as qualified dividends for purposes of the maximum rate under Section 1(h)(11) of the Code for the fiscal year ended December 31, 2009:
FRANKLIN FRANKLIN FRANKLIN TEMPLETON TEMPLETON TEMPLETON CONSERVATIVE MODERATE GROWTH TARGET FUND TARGET FUND TARGET FUND - ------------ ----------- ----------- $3,530,634 $7,305,826 $5,691,599
Distributions, including qualified dividend income, paid during calendar year 2009 will be reported to shareholders on Form 1099-DIV in January 2010. Shareholders are advised to check with their tax advisors for information on the treatment of these amounts on their individual income tax returns. 70 | Annual Report Franklin Templeton Fund Allocator Series BOARD MEMBERS AND OFFICERS The name, year of birth and address of the officers and board members, as well as their affiliations, positions held with the Trust, principal occupations during the past five years and number of portfolios overseen in the Franklin Templeton Investments fund complex are shown below. Generally, each board member serves until that person's successor is elected and qualified. INDEPENDENT BOARD MEMBERS
NUMBER OF PORTFOLIOS IN NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD - ------------------------------ --------------- ------------------ ----------------------- ----------------------------------- HARRIS J. ASHTON (1932) Trustee Since 1995 133 Bar-S Foods (meat packing company). One Franklin Parkway San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Director of various companies; and FORMERLY, Director, RBC Holdings, Inc. (bank holding company) (until 2002); and President, Chief Executive Officer and Chairman of the Board, General Host Corporation (nursery and craft centers) (until 1998). ROBERT F. CARLSON (1928) Trustee Since 2005 110 None One Franklin Parkway San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Retired; and FORMERLY, Vice President, senior member and President, Board of Administration, California Public Employees Retirement Systems (CALPERS) (1971-2008); member and Chairman of the Board, Sutter Community Hospitals; member, Corporate Board, Blue Shield of California; and Chief Counsel, California Department of Transportation. SAM GINN (1937) Trustee Since 2007 110 ICO Global Communications One Franklin Parkway (Holdings) Limited (satellite San Mateo, CA 94403-1906 company). PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Private investor; and FORMERLY, Chairman of the Board, Vodafone AirTouch, PLC (wireless company); Chairman of the Board and Chief Executive Officer, AirTouch Communications (cellular communications) (1993-1998) and Pacific Telesis Groups (telephone holding company) (1988-1994). EDITH E. HOLIDAY (1952) Trustee Since 1998 133 Hess Corporation (exploration and One Franklin Parkway refining of oil and gas), H.J. San Mateo, CA 94403-1906 Heinz Company (processed foods and allied products), RTI International Metals, Inc. (manufacture and distribution of titanium), Canadian National Railway (railroad) and White Mountains Insurance Group, Ltd. (holding company). PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Director or Trustee of various companies and trusts; and FORMERLY, Assistant to the President of the United States and Secretary of the Cabinet (1990-1993); General Counsel to the United States Treasury Department (1989-1990); and Counselor to the Secretary and Assistant Secretary for Public Affairs and Public Liaison - United States Treasury Department (1988-1989).
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NUMBER OF PORTFOLIOS IN NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD - ------------------------------ --------------- ------------------ ----------------------- ----------------------------------- FRANK W.T. LAHAYE (1929) Trustee Since 1995 109 None One Franklin Parkway San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: General Partner, Las Olas L.P. (Asset Management); and FORMERLY, Chairman, Peregrine Venture Management Company (venture capital). J. MICHAEL LUTTIG (1954) Trustee Since December 133 Boeing Capital Corporation One Franklin Parkway 2009 (aircraft financing). San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Executive Vice President, General Counsel and member of Executive Council, The Boeing Company; and FORMERLY, Federal Appeals Court Judge, U.S. Court of Appeals for the Fourth Circuit (1991-2006). FRANK A. OLSON (1932) Trustee Since 2007 133 Hess Corporation (exploration and One Franklin Parkway refining of oil and gas). San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Chairman Emeritus, The Hertz Corporation (car rental) (since 2000) (Chairman of the Board (1980-2000) and Chief Executive Officer (1977-1999)); and FORMERLY, Chairman of the Board, President and Chief Executive Officer, UAL Corporation (airlines). LARRY D. THOMPSON (1945) Trustee Since 2007 141 None One Franklin Parkway San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Senior Vice President - Government Affairs, General Counsel and Secretary, PepsiCo, Inc. (consumer products); and FORMERLY, Director, Delta Airlines (aviation) (2003-2005) and Providian Financial Corp. (credit card provider) (1997-2001); Senior Fellow of The Brookings Institution (2003-2004); Visiting Professor, University of Georgia School of Law (2004); and Deputy Attorney General, U.S. Department of Justice (2001-2003). JOHN B. WILSON (1959) Lead Trustee since 110 None One Franklin Parkway Independent 2006 and Lead San Mateo, CA 94403-1906 Trustee Independent Trustee since 2008 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: President and Founder, Hyannis Port Capital, Inc. (real estate and private equity investing); serves on private and non-profit boards; and FORMERLY, Chief Operating Officer and Executive Vice President, Gap, Inc. (retail) (1996-2000); Chief Financial Officer and Executive Vice President - Finance and Strategy, Staples, Inc. (office supplies) (1992-1996); Senior Vice President - Corporate Planning, Northwest Airlines, Inc. (airlines) (1990-1992); and Vice President and Partner, Bain & Company (consulting firm) (1986-1990).
72 | Annual Report INTERESTED BOARD MEMBERS AND OFFICERS
NUMBER OF PORTFOLIOS IN NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD - ------------------------------ --------------- ------------------ ----------------------- ----------------------------------- **CHARLES B. JOHNSON (1933) Trustee and Since 1995 133 None One Franklin Parkway Chairman of San Mateo, CA 94403-1906 the Board PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Chairman of the Board, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Director, Templeton Worldwide, Inc.; and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 41 of the investment companies in Franklin Templeton Investments. ** GREGORY E. JOHNSON (1961) Trustee Since 2007 89 None One Franklin Parkway San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Director, President and Chief Executive Officer, Franklin Resources, Inc.; President, Templeton Worldwide, Inc.; and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 32 of the investment companies in Franklin Templeton Investments. JAMES M. DAVIS (1952) Chief Chief Compliance Not Applicable Not Applicable One Franklin Parkway Compliance Officer since 2004 San Mateo, CA 94403-1906 Officer and and Vice Vice President President - AML - AML Compliance since Compliance 2006 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Director, Global Compliance, Franklin Resources, Inc.; officer of some of the other subsidiaries of Franklin Resources, Inc. and of 45 of the investment companies in Franklin Templeton Investments; and FORMERLY, Director of Compliance, Franklin Resources, Inc. (1994-2001). LAURA F. FERGERSON (1962) Chief Since March 2009 Not Applicable Not Applicable One Franklin Parkway Executive San Mateo, CA 94403-1906 Officer - Finance and Administration PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Senior Vice President, Franklin Templeton Services, LLC; officer of 45 of the investment companies in Franklin Templeton Investments; and FORMERLY, Director and member of Audit and Valuation Committees, Runkel Funds, Inc. (2003-2004); Assistant Treasurer of most of the investment companies in Franklin Templeton Investments (1997-2003); and Vice President, Franklin Templeton Services, LLC (1997-2003). GASTON GARDEY (1967) Treasurer, Since March 2009 Not Applicable Not Applicable One Franklin Parkway Chief Financial San Mateo, CA 94403-1906 Officer and Chief Accounting Officer PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Director, Fund Accounting, Franklin Templeton Investments; and officer of 27 of the investment companies in Franklin Templeton Investments.
Annual Report | 73
NUMBER OF PORTFOLIOS IN NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD - ------------------------------ --------------- ------------------ ----------------------- ----------------------------------- ALIYA S. GORDON (1973) Vice President Since March 2009 Not Applicable Not Applicable One Franklin Parkway San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Associate General Counsel, Franklin Templeton Investments; officer of 45 of the investment companies in Franklin Templeton Investments; and FORMERLY, Litigation Associate, Steefel, Levitt & Weiss, LLP (2000-2004). DAVID P. GOSS (1947) Vice President Since 2000 Not Applicable Not Applicable One Franklin Parkway San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Senior Associate General Counsel, Franklin Templeton Investments; officer and/or director, as the case maybe, of some of the other subsidiaries of Franklin Resources, Inc. and of 45 of the investment companies in Franklin Templeton Investments. STEVEN J. GRAY (1955) Vice President Since August Not Applicable Not Applicable One Franklin Parkway 2009 San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Senior Associate General Counsel, Franklin Templeton Investments; Vice President, Franklin Templeton Distributors, Inc.; and officer of 45 of the investment companies in Franklin Templeton Investments. RUPERT H. JOHNSON, JR. (1940) President and President and Not Applicable Not Applicable One Franklin Parkway Chief Chief Executive San Mateo, CA 94403-1906 Executive Officer - Officer - Investment Investment Management Management since 2002 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Director, Franklin Advisers, Inc. and Templeton Worldwide, Inc.; Senior Vice President, Franklin Advisory Services, LLC; and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 43 of the investment companies in Franklin Templeton Investments. ROBERT C. ROSSELOT (1960) Vice President Since August Not Applicable Not Applicable 500 East Broward Blvd. 2009 Suite 2100 Fort Lauderdale, FL 33394-3091 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Senior Associate General Counsel, Franklin Templeton Investments; Assistant Secretary, Franklin Resources, Inc.; Vice President and Secretary, Templeton Investment Counsel, LLC; Vice President, Secretary and Trust Officer, Fiduciary Trust International of the South; and officer of 45 of the investment companies in Franklin Templeton Investments. KAREN L. SKIDMORE (1952) Vice President Since 2006 Not Applicable Not Applicable One Franklin Parkway and Secretary San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Senior Associate General Counsel, Franklin Templeton Investments; and officer of 45 of the investment companies in Franklin Templeton Investments.
74 | Annual Report
NUMBER OF PORTFOLIOS IN NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD - ------------------------------ --------------- ------------------ ----------------------- ----------------------------------- CRAIG S. TYLE (1960) Vice President Since 2005 Not Applicable Not Applicable One Franklin Parkway San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: General Counsel and Executive Vice President, Franklin Resources, Inc.; officer of some of the other subsidiaries of Franklin Resources, Inc. and of 45 of the investment companies in Franklin Templeton Investments; and FORMERLY, Partner, Shearman & Sterling, LLP (2004-2005); and General Counsel, Investment Company Institute (ICI) (1997-2004).
* We base the number of portfolios on each separate series of the U.S. registered investment companies within the Franklin Templeton Investments fund complex. These portfolios have a common investment manager or affiliated investment managers. ** Charles B. Johnson is considered to be an interested person of the Fund under the federal securities laws due to his position as officer and director and major shareholder of Franklin Resources, Inc. (Resources), which is the parent company of the Fund's investment manager and distributor. Gregory E. Johnson is considered to be an interested person of the Fund under the federal securities laws due to his position as an officer and director of Resources. Note 1: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers and the father and uncle, respectively, of Gregory E. Johnson. Note 2: Officer information is current as of the date of this report. It is possible that after this date, information about officers may change. THE SARBANES-OXLEY ACT OF 2002 AND RULES ADOPTED BY THE SECURITIES AND EXCHANGE COMMISSION REQUIRE THE FUND TO DISCLOSE WHETHER THE FUND'S AUDIT COMMITTEE INCLUDES AT LEAST ONE MEMBER WHO IS AN AUDIT COMMITTEE FINANCIAL EXPERT WITHIN THE MEANING OF SUCH ACT AND RULES. THE FUND'S BOARD HAS DETERMINED THAT THERE IS AT LEAST ONE SUCH FINANCIAL EXPERT ON THE AUDIT COMMITTEE AND HAS DESIGNATED JOHN B. WILSON AS ITS AUDIT COMMITTEE FINANCIAL EXPERT. THE BOARD BELIEVES THAT MR. WILSON QUALIFIES AS SUCH AN EXPERT IN VIEW OF HIS EXTENSIVE BUSINESS BACKGROUND AND EXPERIENCE, INCLUDING SERVICE AS CHIEF FINANCIAL OFFICER OF STAPLES, INC. FROM 1992 TO 1996. MR. WILSON HAS BEEN A MEMBER AND CHAIRMAN OF THE FUND'S AUDIT COMMITTEE SINCE 2006. AS A RESULT OF SUCH BACKGROUND AND EXPERIENCE, THE BOARD BELIEVES THAT MR. WILSON HAS ACQUIRED AN UNDERSTANDING OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND FINANCIAL STATEMENTS, THE GENERAL APPLICATION OF SUCH PRINCIPLES IN CONNECTION WITH THE ACCOUNTING ESTIMATES, ACCRUALS AND RESERVES, AND ANALYZING AND EVALUATING FINANCIAL STATEMENTS THAT PRESENT A BREADTH AND LEVEL OF COMPLEXITY OF ACCOUNTING ISSUES GENERALLY COMPARABLE TO THOSE OF THE FUND, AS WELL AS AN UNDERSTANDING OF INTERNAL CONTROLS AND PROCEDURES FOR FINANCIAL REPORTING AND AN UNDERSTANDING OF AUDIT COMMITTEE FUNCTIONS. MR. WILSON IS AN INDEPENDENT BOARD MEMBER AS THAT TERM IS DEFINED UNDER THE RELEVANT SECURITIES AND EXCHANGE COMMISSION RULES AND RELEASES. THE STATEMENT OF ADDITIONAL INFORMATION (SAI) INCLUDES ADDITIONAL INFORMATION ABOUT THE BOARD MEMBERS AND IS AVAILABLE, WITHOUT CHARGE, UPON REQUEST. SHAREHOLDERS MAY CALL (800) DIAL BEN/(800) 342-5236 TO REQUEST THE SAI. Annual Report | 75 Franklin Templeton Fund Allocator Series SHAREHOLDER INFORMATION PROXY VOTING POLICIES AND PROCEDURES The Trust's investment manager has established Proxy Voting Policies and Procedures (Policies) that the Trust uses to determine how to vote proxies relating to portfolio securities. Shareholders may view the Trust's complete Policies online at franklintempleton.com. Alternatively, shareholders may request copies of the Policies free of charge by calling the Proxy Group collect at (954) 527-7678 or by sending a written request to: Franklin Templeton Companies, LLC, 500 East Broward Boulevard, Suite 1500, Fort Lauderdale, FL 33394, Attention: Proxy Group. Copies of the Trust's proxy voting records are also made available online at franklintempleton.com and posted on the U.S. Securities and Exchange Commission's website at sec.gov and reflect the most recent 12-month period ended June 30. QUARTERLY STATEMENT OF INVESTMENTS The Trust files a complete statement of investments with the U.S. Securities and Exchange Commission for the first and third quarters for each fiscal year on Form N-Q. Shareholders may view the filed Form N-Q by visiting the Commission's website at sec.gov. The filed form may also be viewed and copied at the Commission's Public Reference Room in Washington, DC. Information regarding the operations of the Public Reference Room may be obtained by calling (800) SEC-0330. 76 | Annual Report Franklin Templeton Funds LITERATURE REQUEST. TO RECEIVE A PROSPECTUS, PLEASE CALL US AT (800) DIAL BEN/(800) 342-5236 OR VISIT franklintempleton.com. INVESTORS SHOULD CAREFULLY CONSIDER A FUND'S INVESTMENT GOALS, RISKS, CHARGES AND EXPENSES BEFORE INVESTING. THE PROSPECTUS CONTAINS THIS AND OTHER INFORMATION. PLEASE CAREFULLY READ THE PROSPECTUS BEFORE INVESTING. TO ENSURE THE HIGHEST QUALITY OF SERVICE, WE MAY MONITOR, RECORD AND ACCESS TELEPHONE CALLS TO OR FROM OUR SERVICE DEPARTMENTS. THESE CALLS CAN BE IDENTIFIED BY THE PRESENCE OF A REGULAR BEEPING TONE. VALUE Franklin All Cap Value Fund Franklin Balance Sheet Investment Fund Franklin Large Cap Value Fund Franklin MicroCap Value Fund(1) Franklin MidCap Value Fund Franklin Small Cap Value Fund Mutual Beacon Fund Mutual Quest Fund(2) Mutual Recovery Fund(3) Mutual Shares Fund BLEND Franklin Focused Core Equity Fund Franklin Large Cap Equity Fund Franklin Rising Dividends Fund GROWTH Franklin DynaTech Fund Franklin Flex Cap Growth Fund Franklin Growth Fund Franklin Growth Opportunities Fund Franklin Small Cap Growth Fund Franklin Small-Mid Cap Growth Fund SECTOR Franklin Biotechnology Discovery Fund Franklin Global Real Estate Fund Franklin Gold & Precious Metals Fund Franklin Natural Resources Fund Franklin Real Estate Securities Fund Franklin Utilities Fund Mutual Financial Services Fund GLOBAL Mutual Global Discovery Fund(4) Templeton Global Long-Short Fund Templeton Global Opportunities Trust Templeton Global Smaller Companies Fund Templeton Growth Fund Templeton World Fund INTERNATIONAL Franklin India Growth Fund Franklin International Growth Fund Franklin International Small Cap Growth Fund Mutual European Fund Mutual International Fund Templeton BRIC Fund Templeton China World Fund Templeton Developing Markets Trust Templeton Emerging Markets Small Cap Fund Templeton Foreign Fund Templeton Foreign Smaller Companies Fund Templeton Frontier Markets Fund HYBRID Franklin Balanced Fund Franklin Convertible Securities Fund Franklin Equity Income Fund Franklin Income Fund Templeton Income Fund ASSET ALLOCATION Franklin Templeton Corefolio(R) Allocation Fund Franklin Templeton Founding Funds Allocation Fund Franklin Templeton Perspectives Allocation Fund Franklin Templeton Conservative Target Fund Franklin Templeton Growth Target Fund Franklin Templeton Moderate Target Fund Franklin Templeton 2015 Retirement Target Fund Franklin Templeton 2025 Retirement Target Fund Franklin Templeton 2035 Retirement Target Fund Franklin Templeton 2045 Retirement Target Fund FIXED INCOME Franklin Adjustable U.S. Government Securities Fund(5) Franklin Floating Rate Daily Access Fund Franklin High Income Fund Franklin Limited Maturity U.S. Government Securities Fund(5) Franklin Low Duration Total Return Fund Franklin Real Return Fund Franklin Strategic Income Fund Franklin Strategic Mortgage Portfolio Franklin Templeton Hard Currency Fund Franklin Total Return Fund Franklin U.S. Government Securities Fund(5) Templeton Global Bond Fund Templeton Global Total Return Fund Templeton International Bond Fund TAX-FREE INCOME(6) NATIONAL Double Tax-Free Income Fund Federal Tax-Free Income Fund High Yield Tax-Free Income Fund Insured Tax-Free Income Fund(7) LIMITED-/INTERMEDIATE-TERM California Intermediate-Term Tax-Free Income Fund Federal Intermediate-Term Tax-Free Income Fund Federal Limited-Term Tax-Free Income Fund New York Intermediate-Term Tax-Free Income Fund STATE-SPECIFIC Alabama Arizona California(8) Colorado Connecticut Florida Georgia Kentucky Louisiana Maryland Massachusetts(9) Michigan(9) Minnesota(9) Missouri New Jersey New York(8) North Carolina Ohio(9) Oregon Pennsylvania Tennessee Virginia INSURANCE FUNDS Franklin Templeton Variable Insurance Products Trust(10) (1.) The fund is closed to new investors. Existing shareholders and select retirement plans can continue adding to their accounts. (2.) Effective 5/1/09, Mutual Qualified Fund changed its name to Mutual Quest Fund. The fund's investment goal and strategy remained unchanged. (3.) The fund is a continuously offered, closed-end fund. Shares may be purchased daily; there is no daily redemption. However, each quarter, pending board approval, the fund will authorize the repurchase of 5%-25% of the outstanding number of shares. Investors may tender all or a portion of their shares during the tender period. (4.) Effective 5/1/09, Mutual Discovery Fund changed its name to Mutual Global Discovery Fund. The fund's investment goal and strategy remained unchanged. (5.) An investment in the fund is neither insured nor guaranteed by the U.S. government or by any other entity or institution. (6.) For investors subject to the alternative minimum tax, a small portion of fund dividends may be taxable. Distributions of capital gains are generally taxable. (7.) The fund invests primarily in insured municipal securities. (8.) These funds are available in three or more variations, including long-term portfolios, intermediate-term portfolios, portfolios of insured securities, a high-yield portfolio (CA only) and a money market portfolio (CA only). (9.) The Board of Trustees approved the elimination of the non-fundamental policy requiring the fund to invest at least 80% of net assets in insured municipal securities and the removal of the word "Insured" from the fund name. The changes became effective 2/15/09. (10.) The funds of the Franklin Templeton Variable Insurance Products Trust are generally available only through insurance company variable contracts. 01/10 Not part of the annual report (FRANKLIN TEMPLETON INVESTMENTS(R) LOGO) One Franklin Parkway San Mateo, CA 94403-1906 SIGN UP FOR ELECTRONIC DELIVERY on franklintempleton.com ANNUAL REPORT AND SHAREHOLDER LETTER FRANKLIN TEMPLETON FUND ALLOCATOR SERIES INVESTMENT MANAGER Franklin Advisers, Inc. DISTRIBUTOR Franklin Templeton Distributors, Inc. (800) DIAL BEN(R) franklintempleton.com SHAREHOLDER SERVICES (800) 632-2301 Authorized for distribution only when accompanied or preceded by a prospectus. Investors should carefully consider a fund's investment goals, risks, charges and expenses before investing. The prospectus contains this and other information; please read it carefully before investing. To ensure the highest quality of service, telephone calls to or from our service departmentsmay be monitored, recorded and accessed. These calls can be identified by the presence of a regular beeping tone. FAS A2009 02/10 DECEMBER 31, 2009 ANNUAL REPORT AND SHAREHOLDER LETTER Franklin Templeton Corefolio Allocation Fund Franklin Templeton Founding Funds Allocation Fund Franklin Templeton Perspectives Allocation Fund SIGN UP FOR ELECTRONIC DELIVERY on franklintempleton.com (GRAPHIC) ASSET ALLOCATION FRANKLIN TEMPLETON FUND ALLOCATOR SERIES (FRANKLIN TEMPLETON INVESTMENTS(R) LOGO) FRANKLIN - TEMPLETON - MUTUAL SERIES Franklin Templeton Investments GAIN FROM OUR PERSPECTIVE(R) Franklin Templeton's distinct multi-manager structure combines the specialized expertise of three world-class investment management groups-- Franklin, Templeton and Mutual Series. SPECIALIZED EXPERTISE Each of our portfolio management groups operates autonomously, relying on its own research and staying true to the unique investment disciplines that underlie its success. FRANKLIN. Founded in 1947, Franklin is a recognized leader in fixed income investing and also brings expertise in growth- and value-style U.S. equity investing. TEMPLETON. Founded in 1940, Templeton pioneered international investing and, in 1954, launched what has become the industry's oldest global fund. Today, with offices in over 25 countries, Templeton offers investors a truly global perspective. MUTUAL SERIES. Founded in 1949, Mutual Series is dedicated to a unique style of value investing, searching aggressively for opportunity among what it believes are undervalued stocks, as well as arbitrage situations and distressed securities. TRUE DIVERSIFICATION Because our management groups work independently and adhere to different investment approaches, Franklin, Templeton and Mutual Series funds typically have distinct portfolios. That's why our funds can be used to build truly diversified allocation plans covering every major asset class. RELIABILITY YOU CAN TRUST At Franklin Templeton Investments, we seek to consistently provide investors with exceptional risk-adjusted returns over the long term, as well as the reliable, accurate and personal service that has helped us become one of the most trusted names in financial services. MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS (GRAPHIC) Not part of the annual report Contents SHAREHOLDER LETTER ........................................................ 1 ANNUAL REPORT Economic and Market Overview .............................................. 3 Franklin Templeton Corefolio Allocation Fund .............................. 5 Franklin Templeton Founding Funds Allocation Fund ......................... 14 Franklin Templeton Perspectives Allocation Fund ........................... 23 Financial Highlights and Statements of Investments ........................ 32 Financial Statements ...................................................... 49 Notes to Financial Statements ............................................. 54 Report of Independent Registered Public Accounting Firm ................... 65 Tax Designation ........................................................... 66 Board Members and Officers ................................................ 67 Shareholder Information ................................................... 72
Shareholder Letter Dear Shareholder: During the year 2009, U.S. economic activity showed signs of stabilization after a prolonged recession. Government stimulus measures helped thaw credit markets, the financial system avoided collapse, and many companies reported better-than-expected earnings after cutting costs. Investors breathed a collective sigh of relief, and equity markets enjoyed a remarkable rally while interest rates remained low and inflation was subdued. Franklin Templeton Fund Allocator Series' annual report goes into greater detail about prevailing conditions during the period under review. In addition, you will find performance data, financial information and portfolio reviews. Please remember that all securities markets fluctuate, as do mutual fund share prices. If you would like more frequent updates, franklintempleton.com provides daily prices, monthly performance figures, portfolio holdings and other information. You can also access your account, buy and sell shares, and find helpful financial planning tools. We hope you will take advantage of these online services. Although market conditions are constantly changing, we remain committed to our disciplined strategy as we manage the Fund, keeping in mind the trust you have placed in us. As always, we recommend investors consult their financial advisors and review their portfolios to design a long-term strategy and portfolio allocation that meet their individual needs, goals and risk tolerance. We firmly believe that most people benefit from professional advice, and that advice is invaluable as investors navigate current market conditions. NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE Not part of the annual report | 1 We thank you for investing with Franklin Templeton, welcome your questions and comments, and look forward to serving your investment needs in the years ahead. Sincerely, /s/ Charles B. Johnson Charles B. Johnson Chairman Franklin Templeton Fund Allocator Series THIS LETTER REFLECTS OUR ANALYSIS AND OPINIONS AS OF DECEMBER 31, 2009. THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY, INDUSTRY, SECURITY OR FUND. STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED RELIABLE. 2 | Not part of the annual report Annual Report Economic and Market Overview The U.S. economy ended 2009 in much better shape than it began. After several quarters of contraction, economic activity expanded in the third and fourth quarters. In the year's second half, corporate profit growth was higher than earlier estimates, which may allow businesses to build inventory following a long period of inventory drawdowns. Economic challenges remain, such as stalled consumer confidence and job prospects for the unemployed, as stimulus measures wind down, but several reports pointed to improving economic conditions. Throughout the year, the Federal Open Market Committee kept U.S. monetary policy unchanged, announcing it intends to hold the federal funds target rate in the 0% to 0.25% range "for an extended period" as it lays the groundwork for an eventual tightening of monetary policy. Late in the period, the labor market improved somewhat as the economy lost fewer jobs than expected and the unemployment rate fell slightly, dropping from a period high of 10.2% in October to 10.0% at period-end.(1) Globally, equity markets entered 2009 largely pricing in a possible economic depression and systemic solvency crisis, scenarios that were ultimately averted by one of the most aggressive global policy responses in financial history. As government monetary and fiscal intervention began to gain traction toward the end of the first quarter, equities bottomed and largely reversed their decline, economic growth stabilized and rebounded, and confidence was rekindled as investors began to believe the global financial system was finally on the mend. Emerging market economies fueled the global recovery as governments aggressively incentivized lending and consumption, resulting in a dramatic recovery that laid the groundwork for the developing world's equity rally. Growing demand from emerging markets supported commodity prices, which also posted record gains during the year. For most of the year, the fading U.S. dollar also helped underpin the rally in hard assets, while continued euro and yen strength created headwinds for regional recoveries. (1.) Source: Bureau of Labor Statistics. Annual Report | 3 For the 12 months under review, the blue chip stocks of the Dow Jones Industrial Average delivered a total return of +22.68%, while the broader Standard & Poor's 500 Index (S&P 500) posted a +26.46% total return and the technology-heavy NASDAQ Composite Index returned +45.32%.(2) Global developed and emerging markets, as measured by the Morgan Stanley Capital International (MSCI) All Country World Index, delivered a +35.41% total return.(3) THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS AND OPINIONS AS OF DECEMBER 31, 2009. THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY, INDUSTRY, SECURITY OR FUND. STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED RELIABLE. (2.) Source: (C) 2009 Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results. The Dow Jones Industrial Average is price weighted based on the average market price of 30 blue chip stocks of companies that are generally industry leaders. The S&P 500 consists of 500 stocks chosen for market size, liquidity and industry group representation. Each stock's weight in the index is proportionate to its market value. The S&P 500 is one of the most widely used benchmarks of U.S. equity performance. The NASDAQ Composite Index measures all NASDAQ domestic and international common type stocks listed on The NASDAQ Stock Market. (3.) Source: (C) 2009 Morningstar. The MSCI All Country World Index is a free float-adjusted, market capitalization-weighted index designed to measure equity market performance in global developed and emerging markets. 4 | Annual Report Franklin Templeton Corefolio Allocation Fund YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Templeton Corefolio Allocation Fund seeks capital appreciation through investments in a combination of Franklin Growth Fund, Mutual Shares Fund and Templeton Growth Fund. ASSET ALLOCATION* Franklin Templeton Corefolio Allocation Fund Based on Total Net Assets as of 12/31/09 (PIE CHART) Domestic Equity............. 75.1% Foreign Equity.............. 24.9%
* The asset allocation is based on the Statement of Investments (SOI), which classifies each underlying fund into a broad asset class. This annual report for Franklin Templeton Corefolio Allocation Fund covers the fiscal year ended December 31, 2009. PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM FIGURES SHOWN. PLEASE VISIT franklintempleton.com OR CALL (800) 342-5236 FOR MOST RECENT MONTH-END PERFORMANCE. PERFORMANCE OVERVIEW Franklin Templeton Corefolio Allocation Fund - Class A delivered a +32.74% cumulative total return for the 12 months under review. In comparison, the Fund's benchmarks, the Standard & Poor's 500 Index (S&P 500) and the Morgan Stanley Capital International (MSCI) World Index, posted total returns of +26.46% and +30.79%.(1) You can find other performance data in the Performance Summary beginning on page 7. (1.) Source: (C) 2009 Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. The S&P 500 consists of 500 stocks chosen for market size, liquidity and industry group representation. Each stock's weight in the index is proportionate to its market value. The S&P 500 is one of the most widely used benchmarks of U.S. equity performance. The MSCI World Index is a free float-adjusted, market capitalization-weighted index designed to measure equity market performance in global developed markets. The indexes are unmanaged and include reinvested distributions. One cannot invest directly in an index, and an index is not representative of the Fund's portfolio. THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S SOI, WHICH BEGINS ON PAGE 37. Annual Report | 5 INVESTMENT STRATEGY The Fund invests its assets allocated approximately 50% in Franklin Growth Fund and approximately 25% each in Mutual Shares Fund and Templeton Growth Fund. These underlying funds, in turn, invest primarily in U.S. and foreign equity securities and, to a lesser extent, fixed income and money market securities. As market conditions affect the underlying funds, we rebalance the Fund's allocations to maintain the predetermined weightings in each underlying fund whenever the actual allocations exceed plus or minus 3% of the fixed allocation percentages. PORTFOLIO REVIEW The Fund's performance can be attributed largely to maintaining a relatively static allocation among domestic and foreign equities, fixed income securities, and short-term investments and other net assets, and to the actual performance of the selected underlying funds. During the fiscal year under review, all three underlying funds had positive total returns. Franklin Growth Fund - Advisor Class and Mutual Shares Fund - Class Z outperformed the S&P 500, while Templeton Growth Fund - Advisor Class performed comparably to the MSCI World Index. Thank you for your continued participation in Franklin Templeton Corefolio Allocation Fund. We look forward to serving your future investment needs. (PHOTO OF T. ANTHONY COFFEY) /s/ T. Anthony Coffey T. Anthony Coffey, CFA Vice President of Franklin Advisers, Inc. Franklin Templeton Corefolio Allocation Fund THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2009, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT OUR MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY. THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY, INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED RELIABLE, BUT THE INVESTMENT MANAGER MAKES NO REPRESENTATION OR WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR INVESTMENT MANAGEMENT PHILOSOPHY. 6 | Annual Report Performance Summary as of 12/31/09 FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND Your dividend income will vary depending on dividends or interest paid by securities in the Fund's portfolio, adjusted for operating expenses of each class. Capital gain distributions are net profits realized from the sale of portfolio securities. The performance table and graphs do not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares. Total return reflects reinvestment of the Fund's dividends and capital gain distributions, if any, and any unrealized gains or losses. PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: FTCOX) CHANGE 12/31/09 12/31/08 - ----------------------- ------- -------- -------- Net Asset Value (NAV) +$2.62 $11.08 $8.46 DISTRIBUTIONS (1/1/09-12/31/09) Dividend Income $0.1419
CLASS B (SYMBOL: FBCOX) CHANGE 12/31/09 12/31/08 - ----------------------- ------- -------- -------- Net Asset Value (NAV) +$2.60 $11.04 $8.44 DISTRIBUTIONS (1/1/09-12/31/09) Dividend Income $0.0700
CLASS C (SYMBOL: FTCLX) CHANGE 12/31/09 12/31/08 - ----------------------- ------- -------- -------- Net Asset Value (NAV) +$2.59 $10.99 $8.40 DISTRIBUTIONS (1/1/09-12/31/09) Dividend Income $0.0729
CLASS R (SYMBOL: N/A) CHANGE 12/31/09 12/31/08 - --------------------- ------- -------- -------- Net Asset Value (NAV) +$2.62 $11.08 $8.46 DISTRIBUTIONS (1/1/09-12/31/09) Dividend Income $0.1204
ADVISOR CLASS (SYMBOL: N/A) CHANGE 12/31/09 12/31/08 - --------------------------- ------- -------- -------- Net Asset Value (NAV) +$2.62 $11.09 $8.47 DISTRIBUTIONS (1/1/09-12/31/09) Dividend Income $0.1683
Annual Report | 7 Performance Summary (CONTINUED) PERFORMANCE(1) CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURN AND VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 5.75% MAXIMUM INITIAL SALES CHARGE; CLASS B: CONTINGENT DEFERRED SALES CHARGE (CDSC) DECLINING FROM 4% TO 1% OVER SIX YEARS, AND ELIMINATED THEREAFTER; CLASS C: 1% CDSC IN FIRST YEAR ONLY; CLASS R/ADVISOR CLASS: NO SALES CHARGES.
INCEPTION CLASS A 1-YEAR 5-YEAR (8/15/03) - ------- ------- ------- --------- Cumulative Total Return(2) +32.74% +6.17% +31.55% Average Annual Total Return(3) +25.05% +0.02% +3.43% Value of $10,000 Investment(4) $12,505 $10,010 $12,398 Total Annual Operating Expenses(5) Without Waiver 1.34% With Waiver 1.12%
INCEPTION CLASS B 1-YEAR 5-YEAR (8/15/03) - ------- ------- ------- --------- Cumulative Total Return(2) +31.73% +2.64% +25.91% Average Annual Total Return(3) +27.73% +0.16% +3.68% Value of $10,000 Investment(4) $12,773 $10,082 $12,591 Total Annual Operating Expenses(5) Without Waiver 2.04% With Waiver 1.82%
INCEPTION CLASS C 1-YEAR 5-YEAR (8/15/03) - ------- ------- ------- --------- Cumulative Total Return(2) +31.80% +2.67% +25.83% Average Annual Total Return(3) +30.80% +0.53% +3.67% Value of $10,000 Investment(4) $13,080 $10,267 $12,583 Total Annual Operating Expenses(5) Without Waiver 2.04% With Waiver 1.82%
INCEPTION CLASS R 1-YEAR 5-YEAR (8/15/03) - ------- ------- ------- --------- Cumulative Total Return(2) +32.49% +5.20% +30.06% Average Annual Total Return(3) +32.49% +1.02% +4.21% Value of $10,000 Investment(4) $13,249 $10,520 $13,006 Total Annual Operating Expenses(5) Without Waiver 1.54% With Waiver 1.32%
INCEPTION ADVISOR CLASS 1-YEAR 5-YEAR (8/15/03) - ------------- ------- ------- --------- Cumulative Total Return(2) +33.01% +7.77% +33.98% Average Annual Total Return(3) +33.01% +1.51% +4.69% Value of $10,000 Investment(4) $13,301 $10,777 $13,398 Total Annual Operating Expenses(5) Without Waiver 1.04% With Waiver 0.82%
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM FIGURES SHOWN. FOR MOST RECENT MONTH-END PERFORMANCE, GO TO franklintempleton.com OR CALL (800) 342-5236. THE ADMINISTRATOR HAS CONTRACTUALLY AGREED TO WAIVE OR LIMIT ITS FEES AND TO ASSUME AS ITS OWN EXPENSE CERTAIN EXPENSES OTHERWISE PAYABLE BY THE FUND SO THAT COMMON EXPENSES (I.E., A COMBINATION OF FUND ADMINISTRATION FEES, AND OTHER EXPENSES, BUT EXCLUDING RULE 12B-1 FEES AND ACQUIRED FUND FEES AND EXPENSES) FOR EACH CLASS OF THE FUND DO NOT EXCEED 0.10% (OTHER THAN CERTAIN NONROUTINE EXPENSES OR COSTS, INCLUDING THOSE RELATING TO LITIGATION, INDEMNIFICATION, REORGANIZATIONS AND LIQUIDATIONS) UNTIL 4/30/10. 8 | Annual Report Performance Summary (CONTINUED) TOTAL RETURN INDEX COMPARISON FOR A HYPOTHETICAL $10,000 INVESTMENT(1) Total return represents the change in value of an investment over the periods shown. It includes any current, applicable, maximum sales charge, Fund expenses, account fees and reinvested distributions. The unmanaged indexes include reinvestment of any income or distributions. They differ from the Fund in composition and do not pay management fees or expenses. One cannot invest directly in an index. AVERAGE ANNUAL TOTAL RETURN
CLASS A 12/31/09 - ------- -------- 1-Year +25.05% 5-Year +0.02% Since Inception (8/15/03) +3.43%
CLASS A (8/15/03-12/31/09) (PERFORMANCE GRAPH)
FRANKLIN TEMPLETON COREFOLIO S&P 500 MSCI WORLD DATE ALLOCATION FUND - CLASS A INDEX INDEX - ---------- ---------------------------- ------- ---------- 8/15/2003 $ 9,425 $10,000 $10,000 8/31/2003 $ 9,491 $10,101 $10,113 9/30/2003 $ 9,369 $ 9,993 $10,177 10/31/2003 $ 9,783 $10,559 $10,783 11/30/2003 $ 9,962 $10,652 $10,950 12/31/2003 $10,457 $11,210 $11,639 1/31/2004 $10,600 $11,416 $11,829 2/29/2004 $10,770 $11,575 $12,031 3/31/2004 $10,637 $11,400 $11,956 4/30/2004 $10,533 $11,221 $11,718 5/31/2004 $10,618 $11,375 $11,832 6/30/2004 $10,884 $11,596 $12,080 7/31/2004 $10,448 $11,212 $11,689 8/31/2004 $10,429 $11,258 $11,745 9/30/2004 $10,600 $11,380 $11,971 10/31/2004 $10,770 $11,554 $12,267 11/30/2004 $11,292 $12,021 $12,917 12/31/2004 $11,677 $12,430 $13,414 1/31/2005 $11,333 $12,127 $13,114 2/28/2005 $11,591 $12,382 $13,536 3/31/2005 $11,439 $12,163 $13,279 4/30/2005 $11,237 $11,932 $12,999 5/31/2005 $11,526 $12,312 $13,239 6/30/2005 $11,546 $12,330 $13,360 7/31/2005 $11,951 $12,788 $13,830 8/31/2005 $11,951 $12,671 $13,940 9/30/2005 $12,067 $12,774 $14,306 10/31/2005 $11,845 $12,561 $13,962 11/30/2005 $12,260 $13,036 $14,435 12/31/2005 $12,452 $13,041 $14,758 1/31/2006 $12,756 $13,386 $15,420 2/28/2006 $12,824 $13,422 $15,404 3/31/2006 $13,089 $13,589 $15,749 4/30/2006 $13,268 $13,772 $16,236 5/31/2006 $12,920 $13,375 $15,696 6/30/2006 $12,901 $13,394 $15,698 7/31/2006 $12,851 $13,476 $15,799 8/31/2006 $13,169 $13,797 $16,217 9/30/2006 $13,427 $14,152 $16,415 10/31/2006 $13,875 $14,614 $17,021 11/30/2006 $14,183 $14,891 $17,447 12/31/2006 $14,350 $15,100 $17,806 1/31/2007 $14,625 $15,329 $18,020 2/28/2007 $14,412 $15,029 $17,934 3/31/2007 $14,549 $15,197 $18,270 4/30/2007 $15,130 $15,870 $19,086 5/31/2007 $15,648 $16,424 $19,640 6/30/2007 $15,534 $16,151 $19,495 7/31/2007 $15,078 $15,650 $19,067 8/31/2007 $15,109 $15,885 $19,061 9/30/2007 $15,565 $16,479 $19,974 10/31/2007 $15,969 $16,741 $20,591 11/30/2007 $15,379 $16,041 $19,759 12/31/2007 $15,097 $15,930 $19,510 1/31/2008 $14,089 $14,974 $18,023 2/29/2008 $13,791 $14,488 $17,927 3/31/2008 $13,608 $14,425 $17,764 4/30/2008 $14,206 $15,128 $18,712 5/31/2008 $14,544 $15,324 $19,021 6/30/2008 $13,226 $14,032 $17,511 7/31/2008 $13,259 $13,914 $17,087 8/31/2008 $13,335 $14,115 $16,855 9/30/2008 $11,953 $12,858 $14,858 10/31/2008 $ 9,819 $10,698 $12,044 11/30/2008 $ 9,068 $ 9,931 $11,273 12/31/2008 $ 9,340 $10,036 $11,641 1/31/2009 $ 8,678 $ 9,190 $10,624 2/28/2009 $ 7,883 $ 8,212 $ 9,544 3/31/2009 $ 8,446 $ 8,931 $10,269 4/30/2009 $ 9,396 $ 9,786 $11,432 5/31/2009 $ 9,914 $10,333 $12,482 6/30/2009 $ 9,931 $10,354 $12,431 7/31/2009 $10,785 $11,137 $13,487 8/31/2009 $11,151 $11,539 $14,050 9/30/2009 $11,694 $11,969 $14,615 10/31/2009 $11,428 $11,747 $14,358 11/30/2009 $11,982 $12,452 $14,952 12/31/2009 $12,398 $12,692 $15,225
AVERAGE ANNUAL TOTAL RETURN
CLASS B 12/31/09 - ------- -------- 1-Year +27.73% 5-Year +0.16% Since Inception (8/15/03) +3.68%
CLASS B (8/15/03-12/31/09) (PERFORMANCE GRAPH)
FRANKLIN TEMPLETON COREFOLIO S&P 500 MSCI WORLD DATE ALLOCATION FUND - CLASS B INDEX INDEX - ---------- ---------------------------- ------- ---------- 8/15/2003 $10,000 $10,000 $10,000 8/31/2003 $10,070 $10,101 $10,113 9/30/2003 $ 9,930 $ 9,993 $10,177 10/31/2003 $10,360 $10,559 $10,783 11/30/2003 $10,550 $10,652 $10,950 12/31/2003 $11,062 $11,210 $11,639 1/31/2004 $11,203 $11,416 $11,829 2/29/2004 $11,374 $11,575 $12,031 3/31/2004 $11,223 $11,400 $11,956 4/30/2004 $11,113 $11,221 $11,718 5/31/2004 $11,193 $11,375 $11,832 6/30/2004 $11,474 $11,596 $12,080 7/31/2004 $11,002 $11,212 $11,689 8/31/2004 $10,982 $11,258 $11,745 9/30/2004 $11,143 $11,380 $11,971 10/31/2004 $11,324 $11,554 $12,267 11/30/2004 $11,866 $12,021 $12,917 12/31/2004 $12,268 $12,430 $13,414 1/31/2005 $11,893 $12,127 $13,114 2/28/2005 $12,156 $12,382 $13,536 3/31/2005 $11,996 $12,163 $13,279 4/30/2005 $11,781 $11,932 $12,999 5/31/2005 $12,077 $12,312 $13,239 6/30/2005 $12,087 $12,330 $13,360 7/31/2005 $12,506 $12,788 $13,830 8/31/2005 $12,496 $12,671 $13,940 9/30/2005 $12,608 $12,774 $14,306 10/31/2005 $12,373 $12,561 $13,962 11/30/2005 $12,802 $13,036 $14,435 12/31/2005 $12,990 $13,041 $14,758 1/31/2006 $13,309 $13,386 $15,420 2/28/2006 $13,360 $13,422 $15,404 3/31/2006 $13,639 $13,589 $15,749 4/30/2006 $13,817 $13,772 $16,236 5/31/2006 $13,441 $13,375 $15,696 6/30/2006 $13,420 $13,394 $15,698 7/31/2006 $13,357 $13,476 $15,799 8/31/2006 $13,681 $13,797 $16,217 9/30/2006 $13,942 $14,152 $16,415 10/31/2006 $14,401 $14,614 $17,021 11/30/2006 $14,715 $14,891 $17,447 12/31/2006 $14,879 $15,100 $17,806 1/31/2007 $15,156 $15,329 $18,020 2/28/2007 $14,922 $15,029 $17,934 3/31/2007 $15,055 $15,197 $18,270 4/30/2007 $15,650 $15,870 $19,086 5/31/2007 $16,181 $16,424 $19,640 6/30/2007 $16,051 $16,151 $19,495 7/31/2007 $15,564 $15,650 $19,067 8/31/2007 $15,596 $15,885 $19,061 9/30/2007 $16,062 $16,479 $19,974 10/31/2007 $16,462 $16,741 $20,591 11/30/2007 $15,845 $16,041 $19,759 12/31/2007 $15,548 $15,930 $19,510 1/31/2008 $14,502 $14,974 $18,023 2/29/2008 $14,183 $14,488 $17,927 3/31/2008 $13,992 $14,425 $17,764 4/30/2008 $14,590 $15,128 $18,712 5/31/2008 $14,929 $15,324 $19,021 6/30/2008 $13,574 $14,032 $17,511 7/31/2008 $13,596 $13,914 $17,087 8/31/2008 $13,664 $14,115 $16,855 9/30/2008 $12,241 $12,858 $14,858 10/31/2008 $10,050 $10,698 $12,044 11/30/2008 $ 9,283 $ 9,931 $11,273 12/31/2008 $ 9,558 $10,036 $11,641 1/31/2009 $ 8,867 $ 9,190 $10,624 2/28/2009 $ 8,052 $ 8,212 $ 9,544 3/31/2009 $ 8,629 $ 8,931 $10,269 4/30/2009 $ 9,592 $ 9,786 $11,432 5/31/2009 $10,102 $10,333 $12,482 6/30/2009 $10,119 $10,354 $12,431 7/31/2009 $10,983 $11,137 $13,487 8/31/2009 $11,347 $11,539 $14,050 9/30/2009 $11,893 $11,969 $14,615 10/31/2009 $11,620 $11,747 $14,358 11/30/2009 $12,177 $12,452 $14,952 12/31/2009 $12,591 $12,692 $15,225
Annual Report | 9 Performance Summary (CONTINUED) AVERAGE ANNUAL TOTAL RETURN
CLASS C 12/31/09 - ------- -------- 1-Year +30.80% 5-Year +0.53% Since Inception (8/15/03) +3.67%
CLASS C (8/15/03-12/31/09) (PERFORMANCE GRAPH)
FRANKLIN TEMPLETON COREFOLIO S&P 500 MSCI WORLD DATE ALLOCATION FUND - CLASS C INDEX INDEX - ---------- ---------------------------- ------- ---------- 8/15/2003 $10,000 $10,000 $10,000 8/31/2003 $10,070 $10,101 $10,113 9/30/2003 $ 9,930 $ 9,993 $10,177 10/31/2003 $10,360 $10,559 $10,783 11/30/2003 $10,540 $10,652 $10,950 12/31/2003 $11,054 $11,210 $11,639 1/31/2004 $11,194 $11,416 $11,829 2/29/2004 $11,365 $11,575 $12,031 3/31/2004 $11,215 $11,400 $11,956 4/30/2004 $11,104 $11,221 $11,718 5/31/2004 $11,194 $11,375 $11,832 6/30/2004 $11,466 $11,596 $12,080 7/31/2004 $10,993 $11,212 $11,689 8/31/2004 $10,973 $11,258 $11,745 9/30/2004 $11,144 $11,380 $11,971 10/31/2004 $11,315 $11,554 $12,267 11/30/2004 $11,858 $12,021 $12,917 12/31/2004 $12,256 $12,430 $13,414 1/31/2005 $11,892 $12,127 $13,114 2/28/2005 $12,155 $12,382 $13,536 3/31/2005 $11,995 $12,163 $13,279 4/30/2005 $11,770 $11,932 $12,999 5/31/2005 $12,066 $12,312 $13,239 6/30/2005 $12,087 $12,330 $13,360 7/31/2005 $12,495 $12,788 $13,830 8/31/2005 $12,495 $12,671 $13,940 9/30/2005 $12,597 $12,774 $14,306 10/31/2005 $12,362 $12,561 $13,962 11/30/2005 $12,801 $13,036 $14,435 12/31/2005 $12,994 $13,041 $14,758 1/31/2006 $13,303 $13,386 $15,420 2/28/2006 $13,365 $13,422 $15,404 3/31/2006 $13,634 $13,589 $15,749 4/30/2006 $13,811 $13,772 $16,236 5/31/2006 $13,435 $13,375 $15,696 6/30/2006 $13,414 $13,394 $15,698 7/31/2006 $13,351 $13,476 $15,799 8/31/2006 $13,675 $13,797 $16,217 9/30/2006 $13,937 $14,152 $16,415 10/31/2006 $14,397 $14,614 $17,021 11/30/2006 $14,710 $14,891 $17,447 12/31/2006 $14,875 $15,100 $17,806 1/31/2007 $15,152 $15,329 $18,020 2/28/2007 $14,918 $15,029 $17,934 3/31/2007 $15,051 $15,197 $18,270 4/30/2007 $15,648 $15,870 $19,086 5/31/2007 $16,179 $16,424 $19,640 6/30/2007 $16,038 $16,151 $19,495 7/31/2007 $15,561 $15,650 $19,067 8/31/2007 $15,593 $15,885 $19,061 9/30/2007 $16,060 $16,479 $19,974 10/31/2007 $16,461 $16,741 $20,591 11/30/2007 $15,843 $16,041 $19,759 12/31/2007 $15,545 $15,930 $19,510 1/31/2008 $14,496 $14,974 $18,023 2/29/2008 $14,176 $14,488 $17,927 3/31/2008 $13,984 $14,425 $17,764 4/30/2008 $14,596 $15,128 $18,712 5/31/2008 $14,924 $15,324 $19,021 6/30/2008 $13,577 $14,032 $17,511 7/31/2008 $13,588 $13,914 $17,087 8/31/2008 $13,667 $14,115 $16,855 9/30/2008 $12,241 $12,858 $14,858 10/31/2008 $10,055 $10,698 $12,044 11/30/2008 $ 9,274 $ 9,931 $11,273 12/31/2008 $ 9,547 $10,036 $11,641 1/31/2009 $ 8,865 $ 9,190 $10,624 2/28/2009 $ 8,047 $ 8,212 $ 9,544 3/31/2009 $ 8,627 $ 8,931 $10,269 4/30/2009 $ 9,581 $ 9,786 $11,432 5/31/2009 $10,104 $10,333 $12,482 6/30/2009 $10,122 $10,354 $12,431 7/31/2009 $10,977 $11,137 $13,487 8/31/2009 $11,354 $11,539 $14,050 9/30/2009 $11,890 $11,969 $14,615 10/31/2009 $11,616 $11,747 $14,358 11/30/2009 $12,176 $12,452 $14,952 12/31/2009 $12,583 $12,692 $15,225
AVERAGE ANNUAL TOTAL RETURN
CLASS R 12/31/09 - ------- -------- 1-Year +32.49% 5-Year +1.02% Since Inception (8/15/03) +4.21%
CLASS R (8/15/03-12/31/09) (PERFORMANCE GRAPH)
FRANKLIN TEMPLETON COREFOLIO S&P 500 MSCI WORLD DATE ALLOCATION FUND - CLASS R INDEX INDEX - ---------- ---------------------------- ------- ---------- 8/15/2003 $10,000 $10,000 $10,000 8/31/2003 $10,070 $10,101 $10,113 9/30/2003 $ 9,940 $ 9,993 $10,177 10/31/2003 $10,380 $10,559 $10,783 11/30/2003 $10,570 $10,652 $10,950 12/31/2003 $11,096 $11,210 $11,639 1/31/2004 $11,236 $11,416 $11,829 2/29/2004 $11,417 $11,575 $12,031 3/31/2004 $11,267 $11,400 $11,956 4/30/2004 $11,156 $11,221 $11,718 5/31/2004 $11,246 $11,375 $11,832 6/30/2004 $11,528 $11,596 $12,080 7/31/2004 $11,065 $11,212 $11,689 8/31/2004 $11,045 $11,258 $11,745 9/30/2004 $11,216 $11,380 $11,971 10/31/2004 $11,397 $11,554 $12,267 11/30/2004 $11,951 $12,021 $12,917 12/31/2004 $12,363 $12,430 $13,414 1/31/2005 $11,998 $12,127 $13,114 2/28/2005 $12,262 $12,382 $13,536 3/31/2005 $12,111 $12,163 $13,279 4/30/2005 $11,886 $11,932 $12,999 5/31/2005 $12,193 $12,312 $13,239 6/30/2005 $12,213 $12,330 $13,360 7/31/2005 $12,633 $12,788 $13,830 8/31/2005 $12,633 $12,671 $13,940 9/30/2005 $12,756 $12,774 $14,306 10/31/2005 $12,520 $12,561 $13,962 11/30/2005 $12,971 $13,036 $14,435 12/31/2005 $13,158 $13,041 $14,758 1/31/2006 $13,479 $13,386 $15,420 2/28/2006 $13,552 $13,422 $15,404 3/31/2006 $13,832 $13,589 $15,749 4/30/2006 $14,022 $13,772 $16,236 5/31/2006 $13,643 $13,375 $15,696 6/30/2006 $13,622 $13,394 $15,698 7/31/2006 $13,569 $13,476 $15,799 8/31/2006 $13,906 $13,797 $16,217 9/30/2006 $14,169 $14,152 $16,415 10/31/2006 $14,642 $14,614 $17,021 11/30/2006 $14,969 $14,891 $17,447 12/31/2006 $15,145 $15,100 $17,806 1/31/2007 $15,435 $15,329 $18,020 2/28/2007 $15,199 $15,029 $17,934 3/31/2007 $15,344 $15,197 $18,270 4/30/2007 $15,958 $15,870 $19,086 5/31/2007 $16,505 $16,424 $19,640 6/30/2007 $16,374 $16,151 $19,495 7/31/2007 $15,892 $15,650 $19,067 8/31/2007 $15,925 $15,885 $19,061 9/30/2007 $16,407 $16,479 $19,974 10/31/2007 $16,823 $16,741 $20,591 11/30/2007 $16,199 $16,041 $19,759 12/31/2007 $15,905 $15,930 $19,510 1/31/2008 $14,841 $14,974 $18,023 2/29/2008 $14,516 $14,488 $17,927 3/31/2008 $14,333 $14,425 $17,764 4/30/2008 $14,953 $15,128 $18,712 5/31/2008 $15,298 $15,324 $19,021 6/30/2008 $13,919 $14,032 $17,511 7/31/2008 $13,942 $13,914 $17,087 8/31/2008 $14,023 $14,115 $16,855 9/30/2008 $12,564 $12,858 $14,858 10/31/2008 $10,325 $10,698 $12,044 11/30/2008 $ 9,532 $ 9,931 $11,273 12/31/2008 $ 9,817 $10,036 $11,641 1/31/2009 $ 9,120 $ 9,190 $10,624 2/28/2009 $ 8,285 $ 8,212 $ 9,544 3/31/2009 $ 8,877 $ 8,931 $10,269 4/30/2009 $ 9,875 $ 9,786 $11,432 5/31/2009 $10,408 $10,333 $12,482 6/30/2009 $10,426 $10,354 $12,431 7/31/2009 $11,323 $11,137 $13,487 8/31/2009 $11,708 $11,539 $14,050 9/30/2009 $12,267 $11,969 $14,615 10/31/2009 $11,987 $11,747 $14,358 11/30/2009 $12,570 $12,452 $14,952 12/31/2009 $13,006 $12,692 $15,225
10 | Annual Report Performance Summary (CONTINUED) AVERAGE ANNUAL TOTAL RETURN
ADVISOR CLASS 12/31/09 - ------------- -------- 1-Year +33.01% 5-Year +1.51% Since Inception (8/15/03) +4.69%
ADVISOR CLASS (8/15/03-12/31/09) (PERFORMANCE GRAPH)
FRANKLIN TEMPLETON COREFOLIO S&P 500 MSCI WORLD DATE ALLOCATION FUND - ADVISOR CLASS INDEX INDEX - ---------- ------------------------------- ------- ---------- 8/15/2003 $10,000 $10,000 $10,000 8/31/2003 $10,070 $10,101 $10,113 9/30/2003 $ 9,940 $ 9,993 $10,177 10/31/2003 $10,380 $10,559 $10,783 11/30/2003 $10,580 $10,652 $10,950 12/31/2003 $11,102 $11,210 $11,639 1/31/2004 $11,253 $11,416 $11,829 2/29/2004 $11,434 $11,575 $12,031 3/31/2004 $11,293 $11,400 $11,956 4/30/2004 $11,193 $11,221 $11,718 5/31/2004 $11,273 $11,375 $11,832 6/30/2004 $11,565 $11,596 $12,080 7/31/2004 $11,092 $11,212 $11,689 8/31/2004 $11,082 $11,258 $11,745 9/30/2004 $11,263 $11,380 $11,971 10/31/2004 $11,444 $11,554 $12,267 11/30/2004 $12,008 $12,021 $12,917 12/31/2004 $12,432 $12,430 $13,414 1/31/2005 $12,066 $12,127 $13,114 2/28/2005 $12,341 $12,382 $13,536 3/31/2005 $12,190 $12,163 $13,279 4/30/2005 $11,974 $11,932 $12,999 5/31/2005 $12,282 $12,312 $13,239 6/30/2005 $12,313 $12,330 $13,360 7/31/2005 $12,734 $12,788 $13,830 8/31/2005 $12,744 $12,671 $13,940 9/30/2005 $12,867 $12,774 $14,306 10/31/2005 $12,631 $12,561 $13,962 11/30/2005 $13,083 $13,036 $14,435 12/31/2005 $13,294 $13,041 $14,758 1/31/2006 $13,618 $13,386 $15,420 2/28/2006 $13,691 $13,422 $15,404 3/31/2006 $13,995 $13,589 $15,749 4/30/2006 $14,186 $13,772 $16,236 5/31/2006 $13,804 $13,375 $15,696 6/30/2006 $13,794 $13,394 $15,698 7/31/2006 $13,741 $13,476 $15,799 8/31/2006 $14,090 $13,797 $16,217 9/30/2006 $14,366 $14,152 $16,415 10/31/2006 $14,853 $14,614 $17,021 11/30/2006 $15,192 $14,891 $17,447 12/31/2006 $15,376 $15,100 $17,806 1/31/2007 $15,680 $15,329 $18,020 2/28/2007 $15,452 $15,029 $17,934 3/31/2007 $15,599 $15,197 $18,270 4/30/2007 $16,220 $15,870 $19,086 5/31/2007 $16,796 $16,424 $19,640 6/30/2007 $16,663 $16,151 $19,495 7/31/2007 $16,186 $15,650 $19,067 8/31/2007 $16,220 $15,885 $19,061 9/30/2007 $16,718 $16,479 $19,974 10/31/2007 $17,150 $16,741 $20,591 11/30/2007 $16,519 $16,041 $19,759 12/31/2007 $16,226 $15,930 $19,510 1/31/2008 $15,145 $14,974 $18,023 2/29/2008 $14,826 $14,488 $17,927 3/31/2008 $14,640 $14,425 $17,764 4/30/2008 $15,282 $15,128 $18,712 5/31/2008 $15,644 $15,324 $19,021 6/30/2008 $14,243 $14,032 $17,511 7/31/2008 $14,266 $13,914 $17,087 8/31/2008 $14,360 $14,115 $16,855 9/30/2008 $12,877 $12,858 $14,858 10/31/2008 $10,577 $10,698 $12,044 11/30/2008 $ 9,772 $ 9,931 $11,273 12/31/2008 $10,073 $10,036 $11,641 1/31/2009 $ 9,359 $ 9,190 $10,624 2/28/2009 $ 8,503 $ 8,212 $ 9,544 3/31/2009 $ 9,122 $ 8,931 $10,269 4/30/2009 $10,144 $ 9,786 $11,432 5/31/2009 $10,691 $10,333 $12,482 6/30/2009 $10,722 $10,354 $12,431 7/31/2009 $11,641 $11,137 $13,487 8/31/2009 $12,047 $11,539 $14,050 9/30/2009 $12,632 $11,969 $14,615 10/31/2009 $12,345 $11,747 $14,358 11/30/2009 $12,954 $12,452 $14,952 12/31/2009 $13,398 $12,692 $15,225
ENDNOTES BECAUSE THE FUND INVESTS IN UNDERLYING FUNDS THAT MAY ENGAGE IN A VARIETY OF INVESTMENT STRATEGIES INVOLVING CERTAIN RISKS, THIS FUND OF FUNDS IS SUBJECT TO THESE SAME RISKS. STOCKS HAVE HISTORICALLY OUTPERFORMED OTHER ASSET CLASSES OVER THE LONG TERM, BUT TEND TO FLUCTUATE MORE DRAMATICALLY OVER THE SHORTER TERM. FOREIGN INVESTING CARRIES ADDITIONAL RISKS SUCH AS CURRENCY AND MARKET VOLATILITY, AND POLITICAL OR SOCIAL INSTABILITY. THESE AND OTHER RISKS, INCLUDING INVESTMENTS IN SPECIALIZED INDUSTRY SECTORS, SUCH AS THE TECHNOLOGY SECTOR, WHICH HAS BEEN AMONG THE MARKET'S MOST VOLATILE SECTORS, INVOLVES SPECIAL CONSIDERATIONS. THE FUND'S PROSPECTUS ALSO INCLUDES A DESCRIPTION OF THE MAIN INVESTMENT RISKS. CLASS B: These shares have higher annual fees and expenses than Class A shares. CLASS C: Prior to 1/1/04, these shares were offered with an initial sales charge; thus actual total returns would have differed. These shares have higher annual fees and expenses than Class A shares. CLASS R: Shares are available to certain eligible investors as described in the prospectus. These shares have higher annual fees and expenses than Class A shares. ADVISOR CLASS: Shares are available to certain eligible investors as described in the prospectus. (1.) If the administrator had not waived fees, the Fund's total returns would have been lower. (2.) Cumulative total return represents the change in value of an investment over the periods indicated. (3.) Average annual total return represents the average annual change in value of an investment over the periods indicated. (4.) These figures represent the value of a hypothetical $10,000 investment in the Fund over the periods indicated. (5.) Figures are as stated in the Fund's prospectus current as of the date of this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses to become higher than the figures shown. (6.) Source: (c) 2009 Morningstar. The S&P 500 consists of 500 stocks chosen for market size, liquidity and industry group representation. Each stock's weight in the index is proportionate to its market value. The S&P 500 is one of the most widely used benchmarks of U.S. equity performance. The MSCI World Index is a free float-adjusted, market capitalization-weighted index designed to measure equity market performance in global developed markets. Annual Report | 11 Your Fund's Expenses FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND As a Fund shareholder, you can incur two types of costs: - - Transaction costs, including sales charges (loads) on Fund purchases; and - - Ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses. The following table shows ongoing costs of investing in the Fund and can help you understand these costs and compare them with those of other mutual funds. The table assumes a $1,000 investment held for the six months indicated. ACTUAL FUND EXPENSES The first line (Actual) for each share class listed in the table provides actual account values and expenses. The "Ending Account Value" is derived from the Fund's actual return, which includes the effect of Fund expenses. You can estimate the expenses you paid during the period by following these steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS ILLUSTRATION: 1. Divide your account value by $1,000. IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6. 2. Multiply the result by the number under the heading "Expenses Paid During Period." IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50. In this illustration, the estimated expenses paid this period are $64.50. HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS Information in the second line (Hypothetical) for each class in the table can help you compare ongoing costs of investing in the Fund with those of other mutual funds. This information may not be used to estimate the actual ending account balance or expenses you paid during the period. The hypothetical "Ending Account Value" is based on the actual expense ratio for each class and an assumed 5% annual rate of return before expenses, which does not represent the Fund's actual return. The figure under the heading "Expenses Paid During Period" shows the hypothetical expenses your account would have incurred under this scenario. You can compare this figure with the 5% hypothetical examples that appear in shareholder reports of other funds. 12 | Annual Report Your Fund's Expenses (CONTINUED) PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES. Therefore, the second line for each class is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transaction costs were included, your total costs would have been higher. Please refer to the Fund prospectus for additional information on operating expenses.
BEGINNING ENDING EXPENSES PAID EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* DURING PERIOD** 7/1/09 12/31/09 7/1/09-12/31/09 7/1/09-12/31/09 ------------- ------------- --------------- --------------- CLASS A Actual $1,000 $1,248.40 $2.15 $ 6.80 Hypothetical (5% return before expenses) $1,000 $1,023.29 $1.94 $ 6.11 CLASS B Actual $1,000 $1,244.30 $6.22 $10.86 Hypothetical (5% return before expenses) $1,000 $1,019.66 $5.60 $ 9.75 CLASS C Actual $1,000 $1,243.20 $6.22 $10.86 Hypothetical (5% return before expenses) $1,000 $1,019.66 $5.60 $ 9.75 CLASS R Actual $1,000 $1,247.40 $3.40 $ 8.04 Hypothetical (5% return before expenses) $1,000 $1,022.18 $3.06 $ 7.22 ADVISOR CLASS Actual $1,000 $1,249.60 $0.57 $ 5.22 Hypothetical (5% return before expenses) $1,000 $1,024.70 $0.51 $ 4.69
* Expenses are calculated using the most recent six-month expense ratio excluding expenses of the underlying funds, net of expense waivers, annualized for each class (A: 0.38%; B: 1.10%; C: 1.10%; R: 0.60%; and Advisor: 0.10%), multiplied by the average account value over the period, multiplied by 184/365 to reflect the one-half year period. A portion of the Fund's expenses have been paid by the underlying funds in which the Fund invests. ** Expenses are calculated using the most recent six-month expense ratio including expenses of the underlying funds, net of expense waivers, annualized for each class (A: 1.20%; B: 1.92%; C: 1.92%; R: 1.42%; and Advisor: 0.92%), multiplied by the average account value over the period, multiplied by 184/365 to reflect the one-half year period. A portion of the Fund's expenses have been paid by the underlying funds in which the Fund invests. Annual Report | 13 Franklin Templeton Founding Funds Allocation Fund YOUR FUND'S GOALS AND MAIN INVESTMENTS: Franklin Templeton Founding Funds Allocation Fund's principal investment goal is capital appreciation, with a secondary goal of income. The Fund invests in an equally weighted combination of Franklin Income Fund, Mutual Shares Fund and Templeton Growth Fund. This annual report for Franklin Templeton Founding Funds Allocation Fund covers the fiscal year ended December 31, 2009. PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM FIGURES SHOWN. PLEASE VISIT franklintempleton.com OR CALL (800) 342-5236 FOR MOST RECENT MONTH-END PERFORMANCE. PERFORMANCE OVERVIEW Franklin Templeton Founding Funds Allocation Fund - Class A delivered a +31.05% cumulative total return for the 12 months under review. In comparison, the Fund's benchmarks, the Standard & Poor's 500 Index (S&P 500) and the Morgan Stanley Capital International (MSCI) World Index, posted total returns of +26.46% and +30.79%.(1) You can find other performance data in the Performance Summary beginning on page 16. INVESTMENT STRATEGY The Fund invests its assets in an equally weighted combination of Franklin Income Fund, Mutual Shares Fund and Templeton Growth Fund. These underlying funds, in turn, invest primarily in U.S. and foreign equity securities and, to a lesser extent, fixed income and money market securities. As market conditions affect the underlying funds, we rebalance the Fund's allocations to maintain the predetermined equal weightings of approximately 33 1/3% of total net assets in each underlying fund whenever the actual allocations exceed plus or minus 3% of the fixed allocation percentages. (1.) Source: (C) 2009 Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. The S&P 500 consists of 500 stocks chosen for market size, liquidity and industry group representation. Each stock's weight in the index is proportionate to its market value. The S&P 500 is one of the most widely used benchmarks of U.S. equity performance. The MSCI World Index is a free float-adjusted, market capitalization-weighted index designed to measure equity market performance in global developed markets. The indexes are unmanaged and include reinvested distributions. One cannot invest directly in an index, and an index is not representative of the Fund's portfolio. THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE SOI BEGINS ON PAGE 43. 14 | Annual Report ASSET ALLOCATION* Franklin Templeton Founding Funds Allocation Fund Based on Total Net Assets as of 12/31/09 (BAR CHART) Domestic Hybrid 33.4% Domestic Equity 33.3% Foreign Equity 33.2% Short-Term Investments & Other Net Assets 0.1%
* The asset allocation is based on the SOI, which classifies each underlying fund into a broad asset class. PORTFOLIO REVIEW The Fund's performance can be attributed largely to maintaining a relatively static allocation among domestic and foreign equities, fixed income securities, and short-term investments and other net assets, and to the actual performance of the selected underlying funds. During the fiscal year under review, all three underlying funds had positive total returns. Franklin Income Fund - Advisor Class and Mutual Shares Fund - Class Z outperformed the S&P 500, while Templeton Growth Fund - Advisor Class performed comparably to the MSCI World Index. Thank you for your continued participation in Franklin Templeton Founding Funds Allocation Fund. We look forward to serving your future investment needs. (PHOTO OF T. ANTHONY COFFEY) /s/ T. Anthony Coffey T. Anthony Coffey, CFA Vice President of Franklin Advisers, Inc. Franklin Templeton Founding Funds Allocation Fund THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2009, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT OUR MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY. THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY, INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED RELIABLE, BUT THE INVESTMENT MANAGER MAKES NO REPRESENTATION OR WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR INVESTMENT MANAGEMENT PHILOSOPHY. Annual Report | 15 Performance Summary as of 12/31/09 FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND Your dividend income will vary depending on dividends or interest paid by securities in the Fund's portfolio, adjusted for operating expenses of each class. Capital gain distributions are net profits realized from the sale of portfolio securities. The performance table and graphs do not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares. Total return reflects reinvestment of the Fund's dividends and capital gain distributions, if any, and any unrealized gains or losses. PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: FFALX) CHANGE 12/31/09 12/31/08 - ----------------------- ------ -------- -------- Net Asset Value (NAV) +$1.99 $9.82 $7.83 DISTRIBUTIONS (1/1/09-12/31/09) Dividend Income $0.3977
CLASS B (SYMBOL: FFABX) CHANGE 12/31/09 12/31/08 - ----------------------- ------ -------- -------- Net Asset Value (NAV) +$1.99 $9.83 $7.84 DISTRIBUTIONS (1/1/09-12/31/09) Dividend Income $0.3324
CLASS C (SYMBOL: FFACX) CHANGE 12/31/09 12/31/08 - ----------------------- ------ -------- -------- Net Asset Value (NAV) +$1.96 $9.70 $7.74 DISTRIBUTIONS (1/1/09-12/31/09) Dividend Income $0.3336
CLASS R (SYMBOL: FFARX) CHANGE 12/31/09 12/31/08 - ----------------------- ------ -------- -------- Net Asset Value (NAV) +$2.00 $9.84 $7.84 DISTRIBUTIONS (1/1/09-12/31/09) Dividend Income $0.3753
ADVISOR CLASS (SYMBOL: FFAAX) CHANGE 12/31/09 12/31/08 - ----------------------------- ------ -------- -------- Net Asset Value (NAV) +$2.00 $9.87 $7.87 DISTRIBUTIONS (1/1/09-12/31/09) Dividend Income $0.4211
16 | Annual Report Performance Summary (CONTINUED) PERFORMANCE(1) CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURN AND VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 5.75% MAXIMUM INITIAL SALES CHARGE; CLASS B: CONTINGENT DEFERRED SALES CHARGE (CDSC) DECLINING FROM 4% TO 1% OVER SIX YEARS, AND ELIMINATED THEREAFTER; CLASS C: 1% CDSC IN FIRST YEAR ONLY; CLASS R/ADVISOR CLASS: NO SALES CHARGES.
CLASS A 1-YEAR 5-YEAR INCEPTION (8/15/03) - ------- ------- ------- ------------------- Cumulative Total Return(2) +31.05% +6.88% +35.46% Average Annual Total Return(3) +23.48% +0.15% +3.90% Value of $10,000 Investment(4) $12,348 $10,073 $12,767 Total Annual Operating Expenses(5) Without Waiver 1.21% With Waiver 1.07%
CLASS B 1-YEAR 5-YEAR INCEPTION (8/15/03) - ------- ------- ------- ------------------- Cumulative Total Return(2) +30.09% +3.23% +29.82% Average Annual Total Return(3) +26.09% +0.32% +4.18% Value of $10,000 Investment(4) $12,609 $10,163 $12,982 Total Annual Operating Expenses(5) Without Waiver 1.91% With Waiver 1.77%
CLASS C 1-YEAR 5-YEAR INCEPTION (8/15/03) - ------- ------- ------- ------------------- Cumulative Total Return(2) +30.11% +3.40% +29.93% Average Annual Total Return(3) +29.11% +0.67% +4.19% Value of $10,000 Investment(4) $12,911 $10,340 $12,993 Total Annual Operating Expenses(5) Without Waiver 1.91% With Waiver 1.77%
CLASS R 1-YEAR 5-YEAR INCEPTION (8/15/03) - ------- ------- ------- ------------------- Cumulative Total Return(2) +30.83% +5.94% +34.21% Average Annual Total Return(3) +30.83% +1.16% +4.72% Value of $10,000 Investment(4) $13,083 $10,594 $13,421 Total Annual Operating Expenses(5) Without Waiver 1.41% With Waiver 1.27%
ADVISOR CLASS 1-YEAR 5-YEAR INCEPTION (8/15/03) - ------------- ------- ------- ------------------- Cumulative Total Return(2) +31.35% +8.56% +38.35% Average Annual Total Return(3) +31.35% +1.66% +5.22% Value of $10,000 Investment(4) $13,135 $10,856 $13,835 Total Annual Operating Expenses(5) Without Waiver 0.91% With Waiver 0.77%
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM FIGURES SHOWN. FOR MOST RECENT MONTH-END PERFORMANCE, GO TO franklintempleton.com OR CALL (800) 342-5236. THE ADMINISTRATOR HAS CONTRACTUALLY AGREED TO WAIVE OR LIMIT ITS FEES AND TO ASSUME AS ITS OWN EXPENSE CERTAIN EXPENSES OTHERWISE PAYABLE BY THE FUND SO THAT COMMON EXPENSES (I.E., A COMBINATION OF FUND ADMINISTRATION FEES, AND OTHER EXPENSES, BUT EXCLUDING RULE 12B-1 FEES AND ACQUIRED FUND FEES AND EXPENSES) FOR EACH CLASS OF THE FUND DO NOT EXCEED 0.10% (OTHER THAN CERTAIN NONROUTINE EXPENSES OR COSTS, INCLUDING THOSE RELATING TO LITIGATION, INDEMNIFICATION, REORGANIZATIONS AND LIQUIDATIONS) UNTIL 4/30/10. Annual Report | 17 Performance Summary (CONTINUED) TOTAL RETURN INDEX COMPARISON FOR A HYPOTHETICAL $10,000 INVESTMENT(1) Total return represents the change in value of an investment over the periods shown. It includes any current, applicable, maximum sales charge, Fund expenses, account fees and reinvested distributions. The unmanaged indexes include reinvestment of any income or distributions. They differ from the Fund in composition and do not pay management fees or expenses. One cannot invest directly in an index. AVERAGE ANNUAL TOTAL RETURN
CLASS A 12/31/09 - ------- -------- 1-Year +23.48% 5-Year +0.15% Since Inception (8/15/03) +3.90%
CLASS A (8/15/03-12/31/09) (PERFORMANCE GRAPH)
FRANKLIN TEMPLETON FOUNDING FUNDS S&P 500 DATE ALLOCATION FUND - CLASS A INDEX MSCI WORLD INDEX - ---------- --------------------------------- ------- ---------------- 8/15/2003 $ 9,425 $10,000 $10,000 8/31/2003 $ 9,463 $10,101 $10,113 9/30/2003 $ 9,519 $ 9,993 $10,177 10/31/2003 $ 9,811 $10,559 $10,783 11/30/2003 $10,019 $10,652 $10,950 12/31/2003 $10,517 $11,210 $11,639 1/31/2004 $10,650 $11,416 $11,829 2/29/2004 $10,850 $11,575 $12,031 3/31/2004 $10,774 $11,400 $11,956 4/30/2004 $10,631 $11,221 $11,718 5/31/2004 $10,641 $11,375 $11,832 6/30/2004 $10,802 $11,596 $12,080 7/31/2004 $10,650 $11,212 $11,689 8/31/2004 $10,783 $11,258 $11,745 9/30/2004 $10,954 $11,380 $11,971 10/31/2004 $11,135 $11,554 $12,267 11/30/2004 $11,610 $12,021 $12,917 12/31/2004 $11,945 $12,430 $13,414 1/31/2005 $11,693 $12,127 $13,114 2/28/2005 $12,082 $12,382 $13,536 3/31/2005 $11,903 $12,163 $13,279 4/30/2005 $11,727 $11,932 $12,999 5/31/2005 $11,903 $12,312 $13,239 6/30/2005 $12,119 $12,330 $13,360 7/31/2005 $12,404 $12,788 $13,830 8/31/2005 $12,473 $12,671 $13,940 9/30/2005 $12,601 $12,774 $14,306 10/31/2005 $12,237 $12,561 $13,962 11/30/2005 $12,404 $13,036 $14,435 12/31/2005 $12,700 $13,041 $14,758 1/31/2006 $13,086 $13,386 $15,420 2/28/2006 $13,157 $13,422 $15,404 3/31/2006 $13,379 $13,589 $15,749 4/30/2006 $13,627 $13,772 $16,236 5/31/2006 $13,400 $13,375 $15,696 6/30/2006 $13,431 $13,394 $15,698 7/31/2006 $13,627 $13,476 $15,799 8/31/2006 $13,937 $13,797 $16,217 9/30/2006 $14,103 $14,152 $16,415 10/31/2006 $14,526 $14,614 $17,021 11/30/2006 $14,857 $14,891 $17,447 12/31/2006 $15,156 $15,100 $17,806 1/31/2007 $15,351 $15,329 $18,020 2/28/2007 $15,275 $15,029 $17,934 3/31/2007 $15,502 $15,197 $18,270 4/30/2007 $16,021 $15,870 $19,086 5/31/2007 $16,407 $16,424 $19,640 6/30/2007 $16,241 $16,151 $19,495 7/31/2007 $15,668 $15,650 $19,067 8/31/2007 $15,613 $15,885 $19,061 9/30/2007 $16,021 $16,479 $19,974 10/31/2007 $16,296 $16,741 $20,591 11/30/2007 $15,811 $16,041 $19,759 12/31/2007 $15,628 $15,930 $19,510 1/31/2008 $14,818 $14,974 $18,023 2/29/2008 $14,459 $14,488 $17,927 3/31/2008 $14,228 $14,425 $17,764 4/30/2008 $14,881 $15,128 $18,712 5/31/2008 $15,023 $15,324 $19,021 6/30/2008 $13,777 $14,032 $17,511 7/31/2008 $13,647 $13,914 $17,087 8/31/2008 $13,623 $14,115 $16,855 9/30/2008 $12,080 $12,858 $14,858 10/31/2008 $10,099 $10,698 $12,044 11/30/2008 $ 9,292 $ 9,931 $11,273 12/31/2008 $ 9,742 $10,036 $11,641 1/31/2009 $ 9,145 $ 9,190 $10,624 2/28/2009 $ 8,336 $ 8,212 $ 9,544 3/31/2009 $ 8,834 $ 8,931 $10,269 4/30/2009 $ 9,755 $ 9,786 $11,432 5/31/2009 $10,377 $10,333 $12,482 6/30/2009 $10,482 $10,354 $12,431 7/31/2009 $11,298 $11,137 $13,487 8/31/2009 $11,668 $11,539 $14,050 9/30/2009 $12,178 $11,969 $14,615 10/31/2009 $11,999 $11,747 $14,358 11/30/2009 $12,331 $12,452 $14,952 12/31/2009 $12,767 $12,692 $15,225
AVERAGE ANNUAL TOTAL RETURN
CLASS B 12/31/09 - ------- -------- 1-Year +26.09% 5-Year +0.32% Since Inception (8/15/03) +4.18%
CLASS B (8/15/03-12/31/09) (PERFORMANCE GRAPH)
FRANKLIN TEMPLETON FOUNDING S&P 500 DATE FUNDS ALLOCATION FUND - CLASS B INDEX MSCI WORLD INDEX - ---------- ------------------------------- ------- ---------------- 8/15/2003 $10,000 $10,000 $10,000 8/31/2003 $10,040 $10,101 $10,113 9/30/2003 $10,090 $ 9,993 $10,177 10/31/2003 $10,400 $10,559 $10,783 11/30/2003 $10,610 $10,652 $10,950 12/31/2003 $11,128 $11,210 $11,639 1/31/2004 $11,279 $11,416 $11,829 2/29/2004 $11,470 $11,575 $12,031 3/31/2004 $11,390 $11,400 $11,956 4/30/2004 $11,229 $11,221 $11,718 5/31/2004 $11,229 $11,375 $11,832 6/30/2004 $11,400 $11,596 $12,080 7/31/2004 $11,239 $11,212 $11,689 8/31/2004 $11,360 $11,258 $11,745 9/30/2004 $11,541 $11,380 $11,971 10/31/2004 $11,722 $11,554 $12,267 11/30/2004 $12,216 $12,021 $12,917 12/31/2004 $12,576 $12,430 $13,414 1/31/2005 $12,298 $12,127 $13,114 2/28/2005 $12,689 $12,382 $13,536 3/31/2005 $12,501 $12,163 $13,279 4/30/2005 $12,303 $11,932 $12,999 5/31/2005 $12,490 $12,312 $13,239 6/30/2005 $12,708 $12,330 $13,360 7/31/2005 $12,998 $12,788 $13,830 8/31/2005 $13,061 $12,671 $13,940 9/30/2005 $13,185 $12,774 $14,306 10/31/2005 $12,801 $12,561 $13,962 11/30/2005 $12,967 $13,036 $14,435 12/31/2005 $13,277 $13,041 $14,758 1/31/2006 $13,671 $13,386 $15,420 2/28/2006 $13,735 $13,422 $15,404 3/31/2006 $13,968 $13,589 $15,749 4/30/2006 $14,207 $13,772 $16,236 5/31/2006 $13,968 $13,375 $15,696 6/30/2006 $14,001 $13,394 $15,698 7/31/2006 $14,196 $13,476 $15,799 8/31/2006 $14,500 $13,797 $16,217 9/30/2006 $14,662 $14,152 $16,415 10/31/2006 $15,096 $14,614 $17,021 11/30/2006 $15,443 $14,891 $17,447 12/31/2006 $15,737 $15,100 $17,806 1/31/2007 $15,929 $15,329 $18,020 2/28/2007 $15,850 $15,029 $17,934 3/31/2007 $16,065 $15,197 $18,270 4/30/2007 $16,593 $15,870 $19,086 5/31/2007 $16,996 $16,424 $19,640 6/30/2007 $16,800 $16,151 $19,495 7/31/2007 $16,214 $15,650 $19,067 8/31/2007 $16,145 $15,885 $19,061 9/30/2007 $16,547 $16,479 $19,974 10/31/2007 $16,835 $16,741 $20,591 11/30/2007 $16,318 $16,041 $19,759 12/31/2007 $16,108 $15,930 $19,510 1/31/2008 $15,270 $14,974 $18,023 2/29/2008 $14,887 $14,488 $17,927 3/31/2008 $14,648 $14,425 $17,764 4/30/2008 $15,311 $15,128 $18,712 5/31/2008 $15,446 $15,324 $19,021 6/30/2008 $14,169 $14,032 $17,511 7/31/2008 $14,022 $13,914 $17,087 8/31/2008 $13,985 $14,115 $16,855 9/30/2008 $12,401 $12,858 $14,858 10/31/2008 $10,351 $10,698 $12,044 11/30/2008 $ 9,516 $ 9,931 $11,273 12/31/2008 $ 9,979 $10,036 $11,641 1/31/2009 $ 9,356 $ 9,190 $10,624 2/28/2009 $ 8,528 $ 8,212 $ 9,544 3/31/2009 $ 9,037 $ 8,931 $10,269 4/30/2009 $ 9,967 $ 9,786 $11,432 5/31/2009 $10,590 $10,333 $12,482 6/30/2009 $10,699 $10,354 $12,431 7/31/2009 $11,518 $11,137 $13,487 8/31/2009 $11,895 $11,539 $14,050 9/30/2009 $12,402 $11,969 $14,615 10/31/2009 $12,220 $11,747 $14,358 11/30/2009 $12,545 $12,452 $14,952 12/31/2009 $12,982 $12,692 $15,225
18 | Annual Report Performance Summary (CONTINUED) AVERAGE ANNUAL TOTAL RETURN
CLASS C 12/31/09 - ------- -------- 1-Year +29.11% 5-Year +0.67% Since Inception (8/15/03) +4.19%
CLASS C (8/15/03-12/31/09) (PERFORMANCE GRAPH)
FRANKLIN TEMPLETON FOUNDING S&P 500 MSCI WORLD DATE FUNDS ALLOCATION FUND - CLASS C INDEX INDEX - ---------- ------------------------------- ------- ---------- 8/15/2003 $10,000 $10,000 $10,000 8/31/2003 $10,040 $10,101 $10,113 9/30/2003 $10,090 $ 9,993 $10,177 10/31/2003 $10,390 $10,559 $10,783 11/30/2003 $10,610 $10,652 $10,950 12/31/2003 $11,129 $11,210 $11,639 1/31/2004 $11,270 $11,416 $11,829 2/29/2004 $11,471 $11,575 $12,031 3/31/2004 $11,391 $11,400 $11,956 4/30/2004 $11,229 $11,221 $11,718 5/31/2004 $11,229 $11,375 $11,832 6/30/2004 $11,401 $11,596 $12,080 7/31/2004 $11,240 $11,212 $11,689 8/31/2004 $11,360 $11,258 $11,745 9/30/2004 $11,542 $11,380 $11,971 10/31/2004 $11,723 $11,554 $12,267 11/30/2004 $12,216 $12,021 $12,917 12/31/2004 $12,565 $12,430 $13,414 1/31/2005 $12,298 $12,127 $13,114 2/28/2005 $12,688 $12,382 $13,536 3/31/2005 $12,500 $12,163 $13,279 4/30/2005 $12,303 $11,932 $12,999 5/31/2005 $12,490 $12,312 $13,239 6/30/2005 $12,697 $12,330 $13,360 7/31/2005 $12,998 $12,788 $13,830 8/31/2005 $13,060 $12,671 $13,940 9/30/2005 $13,185 $12,774 $14,306 10/31/2005 $12,801 $12,561 $13,962 11/30/2005 $12,967 $13,036 $14,435 12/31/2005 $13,272 $13,041 $14,758 1/31/2006 $13,670 $13,386 $15,420 2/28/2006 $13,734 $13,422 $15,404 3/31/2006 $13,969 $13,589 $15,749 4/30/2006 $14,209 $13,772 $16,236 5/31/2006 $13,969 $13,375 $15,696 6/30/2006 $13,991 $13,394 $15,698 7/31/2006 $14,198 $13,476 $15,799 8/31/2006 $14,504 $13,797 $16,217 9/30/2006 $14,668 $14,152 $16,415 10/31/2006 $15,094 $14,614 $17,021 11/30/2006 $15,444 $14,891 $17,447 12/31/2006 $15,728 $15,100 $17,806 1/31/2007 $15,933 $15,329 $18,020 2/28/2007 $15,853 $15,029 $17,934 3/31/2007 $16,070 $15,197 $18,270 4/30/2007 $16,592 $15,870 $19,086 5/31/2007 $16,999 $16,424 $19,640 6/30/2007 $16,801 $16,151 $19,495 7/31/2007 $16,209 $15,650 $19,067 8/31/2007 $16,151 $15,885 $19,061 9/30/2007 $16,546 $16,479 $19,974 10/31/2007 $16,836 $16,741 $20,591 11/30/2007 $16,314 $16,041 $19,759 12/31/2007 $16,116 $15,930 $19,510 1/31/2008 $15,279 $14,974 $18,023 2/29/2008 $14,891 $14,488 $17,927 3/31/2008 $14,650 $14,425 $17,764 4/30/2008 $15,321 $15,128 $18,712 5/31/2008 $15,445 $15,324 $19,021 6/30/2008 $14,165 $14,032 $17,511 7/31/2008 $14,015 $13,914 $17,087 8/31/2008 $13,978 $14,115 $16,855 9/30/2008 $12,399 $12,858 $14,858 10/31/2008 $10,359 $10,698 $12,044 11/30/2008 $ 9,526 $ 9,931 $11,273 12/31/2008 $ 9,986 $10,036 $11,641 1/31/2009 $ 9,367 $ 9,190 $10,624 2/28/2009 $ 8,528 $ 8,212 $ 9,544 3/31/2009 $ 9,031 $ 8,931 $10,269 4/30/2009 $ 9,973 $ 9,786 $11,432 5/31/2009 $10,592 $10,333 $12,482 6/30/2009 $10,704 $10,354 $12,431 7/31/2009 $11,521 $11,137 $13,487 8/31/2009 $11,891 $11,539 $14,050 9/30/2009 $12,405 $11,969 $14,615 10/31/2009 $12,220 $11,747 $14,358 11/30/2009 $12,550 $12,452 $14,952 12/31/2009 $12,993 $12,692 $15,225
AVERAGE ANNUAL TOTAL RETURN
CLASS R 12/31/09 - ------- -------- 1-Year +30.83% 5-Year +1.16% Since Inception (8/15/03) +4.72%
CLASS R (8/15/03-12/31/09) (PERFORMANCE GRAPH)
FRANKLIN TEMPLETON FOUNDING FUNDS S&P 500 DATE ALLOCATION FUND - CLASS R INDEX MSCI WORLD INDEX - ---------- --------------------------------- ------- ---------------- 8/15/2003 $10,000 $10,000 $10,000 8/31/2003 $10,040 $10,101 $10,113 9/30/2003 $10,100 $ 9,993 $10,177 10/31/2003 $10,410 $10,559 $10,783 11/30/2003 $10,630 $10,652 $10,950 12/31/2003 $11,168 $11,210 $11,639 1/31/2004 $11,319 $11,416 $11,829 2/29/2004 $11,521 $11,575 $12,031 3/31/2004 $11,440 $11,400 $11,956 4/30/2004 $11,279 $11,221 $11,718 5/31/2004 $11,289 $11,375 $11,832 6/30/2004 $11,471 $11,596 $12,080 7/31/2004 $11,309 $11,212 $11,689 8/31/2004 $11,440 $11,258 $11,745 9/30/2004 $11,622 $11,380 $11,971 10/31/2004 $11,803 $11,554 $12,267 11/30/2004 $12,307 $12,021 $12,917 12/31/2004 $12,668 $12,430 $13,414 1/31/2005 $12,400 $12,127 $13,114 2/28/2005 $12,803 $12,382 $13,536 3/31/2005 $12,624 $12,163 $13,279 4/30/2005 $12,426 $11,932 $12,999 5/31/2005 $12,614 $12,312 $13,239 6/30/2005 $12,843 $12,330 $13,360 7/31/2005 $13,145 $12,788 $13,830 8/31/2005 $13,207 $12,671 $13,940 9/30/2005 $13,343 $12,774 $14,306 10/31/2005 $12,957 $12,561 $13,962 11/30/2005 $13,134 $13,036 $14,435 12/31/2005 $13,444 $13,041 $14,758 1/31/2006 $13,852 $13,386 $15,420 2/28/2006 $13,928 $13,422 $15,404 3/31/2006 $14,163 $13,589 $15,749 4/30/2006 $14,414 $13,772 $16,236 5/31/2006 $14,174 $13,375 $15,696 6/30/2006 $14,217 $13,394 $15,698 7/31/2006 $14,414 $13,476 $15,799 8/31/2006 $14,743 $13,797 $16,217 9/30/2006 $14,907 $14,152 $16,415 10/31/2006 $15,356 $14,614 $17,021 11/30/2006 $15,717 $14,891 $17,447 12/31/2006 $16,018 $15,100 $17,806 1/31/2007 $16,224 $15,329 $18,020 2/28/2007 $16,144 $15,029 $17,934 3/31/2007 $16,373 $15,197 $18,270 4/30/2007 $16,932 $15,870 $19,086 5/31/2007 $17,340 $16,424 $19,640 6/30/2007 $17,153 $16,151 $19,495 7/31/2007 $16,547 $15,650 $19,067 8/31/2007 $16,489 $15,885 $19,061 9/30/2007 $16,909 $16,479 $19,974 10/31/2007 $17,212 $16,741 $20,591 11/30/2007 $16,687 $16,041 $19,759 12/31/2007 $16,485 $15,930 $19,510 1/31/2008 $15,631 $14,974 $18,023 2/29/2008 $15,240 $14,488 $17,927 3/31/2008 $14,997 $14,425 $17,764 4/30/2008 $15,698 $15,128 $18,712 5/31/2008 $15,835 $15,324 $19,021 6/30/2008 $14,521 $14,032 $17,511 7/31/2008 $14,383 $13,914 $17,087 8/31/2008 $14,346 $14,115 $16,855 9/30/2008 $12,731 $12,858 $14,858 10/31/2008 $10,628 $10,698 $12,044 11/30/2008 $ 9,777 $ 9,931 $11,273 12/31/2008 $10,259 $10,036 $11,641 1/31/2009 $ 9,618 $ 9,190 $10,624 2/28/2009 $ 8,767 $ 8,212 $ 9,544 3/31/2009 $ 9,290 $ 8,931 $10,269 4/30/2009 $10,259 $ 9,786 $11,432 5/31/2009 $10,913 $10,333 $12,482 6/30/2009 $11,022 $10,354 $12,431 7/31/2009 $11,879 $11,137 $13,487 8/31/2009 $12,268 $11,539 $14,050 9/30/2009 $12,804 $11,969 $14,615 10/31/2009 $12,616 $11,747 $14,358 11/30/2009 $12,964 $12,452 $14,952 12/31/2009 $13,421 $12,692 $15,225
Annual Report | 19 Performance Summary (CONTINUED) AVERAGE ANNUAL TOTAL RETURN
ADVISOR CLASS 12/31/09 - ------------- -------- 1-Year +31.35% 5-Year +1.66% Since Inception (8/15/03) +5.22%
ADVISOR CLASS (8/15/03-12/31/09) (PERFORMANCE GRAPH)
FRANKLIN TEMPLETON FOUNDING FUNDS S&P 500 DATE ALLOCATION FUND - ADVISOR CLASS INDEX MSCI WORLD INDEX - ---------- --------------------------------- ------- ---------------- 8/15/2003 $10,000 $10,000 $10,000 8/31/2003 $10,040 $10,101 $10,113 9/30/2003 $10,100 $ 9,993 $10,177 10/31/2003 $10,420 $10,559 $10,783 11/30/2003 $10,640 $10,652 $10,950 12/31/2003 $11,175 $11,210 $11,639 1/31/2004 $11,326 $11,416 $11,829 2/29/2004 $11,538 $11,575 $12,031 3/31/2004 $11,457 $11,400 $11,956 4/30/2004 $11,306 $11,221 $11,718 5/31/2004 $11,326 $11,375 $11,832 6/30/2004 $11,508 $11,596 $12,080 7/31/2004 $11,346 $11,212 $11,689 8/31/2004 $11,477 $11,258 $11,745 9/30/2004 $11,669 $11,380 $11,971 10/31/2004 $11,861 $11,554 $12,267 11/30/2004 $12,375 $12,021 $12,917 12/31/2004 $12,744 $12,430 $13,414 1/31/2005 $12,475 $12,127 $13,114 2/28/2005 $12,889 $12,382 $13,536 3/31/2005 $12,710 $12,163 $13,279 4/30/2005 $12,511 $11,932 $12,999 5/31/2005 $12,710 $12,312 $13,239 6/30/2005 $12,940 $12,330 $13,360 7/31/2005 $13,253 $12,788 $13,830 8/31/2005 $13,326 $12,671 $13,940 9/30/2005 $13,472 $12,774 $14,306 10/31/2005 $13,086 $12,561 $13,962 11/30/2005 $13,263 $13,036 $14,435 12/31/2005 $13,589 $13,041 $14,758 1/31/2006 $14,011 $13,386 $15,420 2/28/2006 $14,087 $13,422 $15,404 3/31/2006 $14,335 $13,589 $15,749 4/30/2006 $14,599 $13,772 $16,236 5/31/2006 $14,357 $13,375 $15,696 6/30/2006 $14,401 $13,394 $15,698 7/31/2006 $14,621 $13,476 $15,799 8/31/2006 $14,952 $13,797 $16,217 9/30/2006 $15,128 $14,152 $16,415 10/31/2006 $15,591 $14,614 $17,021 11/30/2006 $15,955 $14,891 $17,447 12/31/2006 $16,270 $15,100 $17,806 1/31/2007 $16,491 $15,329 $18,020 2/28/2007 $16,421 $15,029 $17,934 3/31/2007 $16,664 $15,197 $18,270 4/30/2007 $17,229 $15,870 $19,086 5/31/2007 $17,653 $16,424 $19,640 6/30/2007 $17,477 $16,151 $19,495 7/31/2007 $16,864 $15,650 $19,067 8/31/2007 $16,817 $15,885 $19,061 9/30/2007 $17,253 $16,479 $19,974 10/31/2007 $17,559 $16,741 $20,591 11/30/2007 $17,029 $16,041 $19,759 12/31/2007 $16,836 $15,930 $19,510 1/31/2008 $15,968 $14,974 $18,023 2/29/2008 $15,584 $14,488 $17,927 3/31/2008 $15,337 $14,425 $17,764 4/30/2008 $16,061 $15,128 $18,712 5/31/2008 $16,201 $15,324 $19,021 6/30/2008 $14,867 $14,032 $17,511 7/31/2008 $14,727 $13,914 $17,087 8/31/2008 $14,702 $14,115 $16,855 9/30/2008 $13,050 $12,858 $14,858 10/31/2008 $10,902 $10,698 $12,044 11/30/2008 $10,038 $ 9,931 $11,273 12/31/2008 $10,533 $10,036 $11,641 1/31/2009 $ 9,891 $ 9,190 $10,624 2/28/2009 $ 9,021 $ 8,212 $ 9,544 3/31/2009 $ 9,556 $ 8,931 $10,269 4/30/2009 $10,546 $ 9,786 $11,432 5/31/2009 $11,229 $10,333 $12,482 6/30/2009 $11,343 $10,354 $12,431 7/31/2009 $12,235 $11,137 $13,487 8/31/2009 $12,633 $11,539 $14,050 9/30/2009 $13,183 $11,969 $14,615 10/31/2009 $13,004 $11,747 $14,358 11/30/2009 $13,361 $12,452 $14,952 12/31/2009 $13,835 $12,692 $15,225
ENDNOTES BECAUSE THE FUND INVESTS IN UNDERLYING FUNDS THAT MAY ENGAGE IN A VARIETY OF INVESTMENT STRATEGIES INVOLVING CERTAIN RISKS, THE FUND MAY BE SUBJECT TO THESE SAME RISKS. STOCKS HISTORICALLY HAVE OUTPERFORMED OTHER ASSET CLASSES OVER THE LONG TERM, BUT TEND TO FLUCTUATE MORE DRAMATICALLY OVER THE SHORT TERM. BONDS ARE AFFECTED BY CHANGES IN INTEREST RATES AND THE CREDITWORTHINESS OF THEIR ISSUERS. BOND PRICES GENERALLY MOVE IN THE OPPOSITE DIRECTION OF INTEREST RATES. THUS, AS PRICES OF BONDS ADJUST TO A RISE IN INTEREST RATES, THE FUND'S SHARE PRICE MAY DECLINE. HIGHER YIELDING, LOWER RATED CORPORATE BONDS ENTAIL A GREATER DEGREE OF CREDIT RISK COMPARED TO INVESTMENT-GRADE SECURITIES. FOREIGN INVESTING, ESPECIALLY IN DEVELOPING COUNTRIES, CARRIES ADDITIONAL RISKS SUCH AS CURRENCY AND MARKET VOLATILITY, AND POLITICAL OR SOCIAL INSTABILITY. VALUE SECURITIES MAY NOT INCREASE IN PRICE AS ANTICIPATED OR MAY DECLINE FURTHER IN VALUE. THE FUND'S PROSPECTUS ALSO INCLUDES A DESCRIPTION OF THE MAIN INVESTMENT RISKS. CLASS B: These shares have higher annual fees and expenses than Class A shares. CLASS C: Prior to 1/1/04, these shares were offered with an initial sales charge; thus actual total returns would have differed. These shares have higher annual fees and expenses than Class A shares. CLASS R: Shares are available to certain eligible investors as described in the prospectus. These shares have higher annual fees and expenses than Class A shares. ADVISOR CLASS: Shares are available to certain eligible investors as described in the prospectus. (1.) If the administrator had not waived fees, the Fund's total returns would have been lower. (2.) Cumulative total return represents the change in value of an investment over the periods indicated. (3.) Average annual total return represents the average annual change in value of an investment over the periods indicated. (4.) These figures represent the value of a hypothetical $10,000 investment in the Fund over the periods indicated. (5.) Figures are as stated in the Fund's prospectus current as of the date of this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses to become higher than the figures shown. (6.) Source: (C) 2009 Morningstar. The S&P 500 consists of 500 stocks chosen for market size, liquidity and industry group representation. Each stock's weight in the index is proportionate to its market value. The S&P 500 is one of the most widely used benchmarks of U.S. equity performance. The MSCI World Index is a free float-adjusted, market capitalization-weighted index designed to measure equity market performance in global developed markets. 20 | Annual Report Your Fund's Expenses FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND As a Fund shareholder, you can incur two types of costs: - - Transaction costs, including sales charges (loads) on Fund purchases; and - - Ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses. The following table shows ongoing costs of investing in the Fund and can help you understand these costs and compare them with those of other mutual funds. The table assumes a $1,000 investment held for the six months indicated. ACTUAL FUND EXPENSES The first line (Actual) for each share class listed in the table provides actual account values and expenses. The "Ending Account Value" is derived from the Fund's actual return, which includes the effect of Fund expenses. You can estimate the expenses you paid during the period by following these steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS ILLUSTRATION: 1. Divide your account value by $1,000. IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6. 2. Multiply the result by the number under the heading "Expenses Paid During Period." IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50. In this illustration, the estimated expenses paid this period are $64.50. HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS Information in the second line (Hypothetical) for each class in the table can help you compare ongoing costs of investing in the Fund with those of other mutual funds. This information may not be used to estimate the actual ending account balance or expenses you paid during the period. The hypothetical "Ending Account Value" is based on the actual expense ratio for each class and an assumed 5% annual rate of return before expenses, which does not represent the Fund's actual return. The figure under the heading "Expenses Paid During Period" shows the hypothetical expenses your account would have incurred under this scenario. You can compare this figure with the 5% hypothetical examples that appear in shareholder reports of other funds. Annual Report | 21 Your Fund's Expenses (CONTINUED) PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES. Therefore, the second line for each class is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transaction costs were included, your total costs would have been higher. Please refer to the Fund prospectus for additional information on operating expenses.
BEGINNING ENDING EXPENSES PAID EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* DURING PERIOD** 7/1/09 12/31/09 7/1/09-12/31/09 7/1/09-12/31/09 ------------- ------------- --------------- --------------- CLASS A Actual $1,000 $1,218.00 $2.07 $ 6.32 Hypothetical (5% return before expenses) $1,000 $1,023.34 $1.89 $ 5.75 CLASS B Actual $1,000 $1,213.40 $6.08 $10.32 Hypothetical (5% return before expenses) $1,000 $1,019.71 $5.55 $ 9.40 CLASS C Actual $1,000 $1,213.80 $6.19 $10.43 Hypothetical (5% return before expenses) $1,000 $1,019.61 $5.65 $ 9.50 CLASS R Actual $1,000 $1,217.60 $3.35 $ 7.60 Hypothetical (5% return before expenses) $1,000 $1,022.18 $3.06 $ 6.92 ADVISOR CLASS Actual $1,000 $1,219.80 $0.56 $ 4.81 Hypothetical (5% return before expenses) $1,000 $1,024.70 $0.51 $ 4.38
* Expenses are calculated using the most recent six-month expense ratio excluding expenses of the underlying funds, net of expense waivers, annualized for each class (A: 0.37%; B: 1.09%; C: 1.11%; R: 0.60%; and Advisor: 0.10%), multiplied by the average account value over the period, multiplied by 184/365 to reflect the one-half year period. A portion of the Fund's expenses have been paid by the underlying funds in which the Fund invests. ** Expenses are calculated using the most recent six-month expense ratio including expenses of the underlying funds, net of expense waivers, annualized for each class (A: 1.13%; B: 1.85%; C: 1.87%; R: 1.36%; and Advisor: 0.86%), multiplied by the average account value over the period, multiplied by 184/365 to reflect the one-half year period. A portion of the Fund's expenses have been paid by the underlying funds in which the Fund invests. 22 | Annual Report Franklin Templeton Perspectives Allocation Fund YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Templeton Perspectives Allocation Fund seeks capital appreciation through investments in an equally weighted combination of Franklin Flex Cap Growth Fund, Mutual Shares Fund and Templeton Growth Fund. This annual report for Franklin Templeton Perspectives Allocation Fund covers the fiscal year ended December 31, 2009. PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM FIGURES SHOWN. PLEASE VISIT franklintempleton.com OR CALL (800) 342-5236 FOR MOST RECENT MONTH-END PERFORMANCE. PERFORMANCE OVERVIEW Franklin Templeton Perspectives Allocation Fund - Class A delivered a +30.65% cumulative total return for the 12 months under review. In comparison, the Fund's benchmarks, the Standard & Poor's 500 Index (S&P 500) and the Morgan Stanley Capital International (MSCI) World Index, posted total returns of +26.46% and +30.79%.(1) You can find other performance data in the Performance Summary beginning on page 25. INVESTMENT STRATEGY The Fund invests its assets in an equally weighted combination of Franklin Flex Cap Growth Fund, Mutual Shares Fund and Templeton Growth Fund. These underlying funds, in turn, invest primarily in U.S. and foreign equity securities and, to a lesser extent, fixed income and money market securities. As market conditions affect the underlying funds, we rebalance the Fund's allocations to maintain the predetermined equal weightings of approximately 33 1/3% of total net assets in each underlying fund whenever the actual allocations exceed plus or minus 3% of the fixed allocation percentages. (1.) Source: (C) 2009 Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. The S&P 500 consists of 500 stocks chosen for market size, liquidity and industry group representation. Each stock's weight in the index is proportionate to its market value. The S&P 500 is one of the most widely used benchmarks of U.S. equity performance. The MSCI World Index is a free float-adjusted, market capitalization-weighted index designed to measure equity market performance in global developed markets. The indexes are unmanaged and include reinvested distributions. One cannot invest directly in an index, and an index is not representative of the Fund's portfolio. THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE SOI BEGINS ON PAGE 48. Annual Report | 23 ASSET ALLOCATION* Franklin Templeton Perspectives Allocation Fund Based on Total Net Assets as of 12/31/09 (BAR CHART) Domestic Equity 66.5% Foreign Equity 33.1% Short-Term Investments & Other Net Assets 0.4%
* The asset allocation is based on the SOI, which classifies each underlying fund into a broad asset class. PORTFOLIO REVIEW The Fund's performance can be attributed largely to maintaining a relatively static allocation among domestic and foreign equities, fixed income securities, and short-term investments and other net assets, and to the actual performance of the selected underlying funds. During the fiscal year under review, all three underlying funds had positive total returns. Franklin Flex Cap Growth Fund - Advisor Class and Mutual Shares Fund - Class Z outperformed the S&P 500, while Templeton Growth Fund - Advisor Class performed comparably to the MSCI World Index. Thank you for your continued participation in Franklin Templeton Perspectives Allocation Fund. We look forward to serving your future investment needs. (PHOTO OF T. ANTHONY COFFEY) /s/ T. Anthony Coffey T. Anthony Coffey, CFA Vice President of Franklin Advisers, Inc. Franklin Templeton Perspectives Allocation Fund THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2009, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT OUR MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY. THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY, INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED RELIABLE, BUT THE INVESTMENT MANAGER MAKES NO REPRESENTATION OR WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR INVESTMENT MANAGEMENT PHILOSOPHY. 24 | Annual Report Performance Summary as of 12/31/09 FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION FUND Your dividend income will vary depending on dividends or interest paid by securities in the Fund's portfolio, adjusted for operating expenses of each class. Capital gain distributions are net profits realized from the sale of portfolio securities. The performance table and graphs do not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares. Total return reflects reinvestment of the Fund's dividends and capital gain distributions, if any, and any unrealized gains or losses. PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: FPAAX) CHANGE 12/31/09 12/31/08 - ----------------------- ------ -------- -------- Net Asset Value (NAV) +$2.25 $9.94 $7.69 DISTRIBUTIONS (1/1/09-12/31/09) Dividend Income $0.1024
CLASS C (SYMBOL: FPCAX) CHANGE 12/31/09 12/31/08 - ----------------------- ------ -------- -------- Net Asset Value (NAV) +$2.23 $9.89 $7.66 DISTRIBUTIONS (1/1/09-12/31/09) Dividend Income $0.0400
CLASS R (SYMBOL: N/A) CHANGE 12/31/09 12/31/08 - --------------------- ------ -------- -------- Net Asset Value (NAV) +$2.25 $9.95 $7.70 DISTRIBUTIONS (1/1/09-12/31/09) Dividend Income $0.0814
ADVISOR CLASS (SYMBOL: N/A) CHANGE 12/31/09 12/31/08 - --------------------------- ------ -------- -------- Net Asset Value (NAV) +$2.26 $9.97 $7.71 DISTRIBUTIONS (1/1/09-12/31/09) Dividend Income $0.1267
Annual Report | 25 Performance Summary (CONTINUED) PERFORMANCE(1) CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURN AND VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 5.75% MAXIMUM INITIAL SALES CHARGE; CLASS C: 1% CONTINGENT DEFERRED SALES CHARGE IN FIRST YEAR ONLY; CLASS R/ADVISOR CLASS: NO SALES CHARGES.
INCEPTION CLASS A 1-YEAR 5-YEAR (8/2/04) - ------- ------- ------ --------- Cumulative Total Return(2) +30.65% +4.85% +18.41% Average Annual Total Return(3) +23.13% -0.23% +2.05% Value of $10,000 Investment(4) $12,313 $9,885 $11,160 Total Annual Operating Expenses(5) Without Waiver 1.42% With Waiver 1.14%
INCEPTION CLASS C 1-YEAR 5-YEAR (8/2/04) - ------- ------- ------- --------- Cumulative Total Return(2) +29.70% +1.29% +14.11% Average Annual Total Return(3) +28.70% +0.26% +2.47% Value of $10,000 Investment(4) $12,870 $10,129 $11,411 Total Annual Operating Expenses(5) Without Waiver 2.12% With Waiver 1.84%
INCEPTION CLASS R 1-YEAR 5-YEAR (8/2/04) - ------- ------- ------- --------- Cumulative Total Return(2) +30.34% +3.89% +17.21% Average Annual Total Return(3) +30.34% +0.77% +2.98% Value of $10,000 Investment(4) $13,034 $10,389 $11,721 Total Annual Operating Expenses(5) Without Waiver 1.62% With Waiver 1.34%
INCEPTION ADVISOR CLASS 1-YEAR 5-YEAR (8/2/04) - ------------- ------- ------- --------- Cumulative Total Return(2) +31.02% +6.65% +20.53% Average Annual Total Return(3) +31.02% +1.30% +3.51% Value of $10,000 Investment(4) $13,102 $10,665 $12,053 Total Annual Operating Expenses(5) Without Waiver 1.12% With Waiver 0.84%
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM FIGURES SHOWN. FOR MOST RECENT MONTH-END PERFORMANCE, GO TO franklintempleton.com OR CALL (800) 342-5236. THE ADMINISTRATOR HAS CONTRACTUALLY AGREED TO WAIVE OR LIMIT ITS FEES AND TO ASSUME AS ITS OWN EXPENSE CERTAIN EXPENSES OTHERWISE PAYABLE BY THE FUND SO THAT COMMON EXPENSES (I.E., A COMBINATION OF FUND ADMINISTRATION FEES, AND OTHER EXPENSES, BUT EXCLUDING RULE 12B-1 FEES AND ACQUIRED FUND FEES AND EXPENSES) FOR EACH CLASS OF THE FUND DO NOT EXCEED 0.10% (OTHER THAN CERTAIN NONROUTINE EXPENSES OR COSTS, INCLUDING THOSE RELATING TO LITIGATION, INDEMNIFICATION, REORGANIZATIONS AND LIQUIDATIONS) UNTIL 4/30/10. 26 | Annual Report Performance Summary (CONTINUED) TOTAL RETURN INDEX COMPARISON FOR A HYPOTHETICAL $10,000 INVESTMENT(1) Total return represents the change in value of an investment over the periods shown. It includes any applicable maximum sales charge, Fund expenses, account fees and reinvested distributions. The unmanaged indexes include reinvestment of any income or distributions. They differ from the Fund in composition and do not pay management fees or expenses. One cannot invest directly in an index. AVERAGE ANNUAL TOTAL RETURN
CLASS A 12/31/09 - ------- -------- 1-Year +23.13% 5-Year -0.23% Since Inception (8/2/04) +2.05%
CLASS A (8/2/04-12/31/09)
FRANKLIN TEMPLETON PERSPECTIVES S&P 500 MSCI WORLD DATE ALLOCATION FUND - CLASS A INDEX INDEX - ---------- ------------------------------- ------- ---------- 8/2/2004 $ 9,425 $10,000 $10,000 8/31/2004 $ 9,510 $10,040 $10,048 9/30/2004 $ 9,670 $10,149 $10,241 10/31/2004 $ 9,840 $10,304 $10,494 11/30/2004 $10,311 $10,721 $11,050 12/31/2004 $10,643 $11,086 $11,475 1/31/2005 $10,367 $10,816 $11,219 2/28/2005 $10,681 $11,043 $11,580 3/31/2005 $10,519 $10,848 $11,360 4/30/2005 $10,328 $10,642 $11,120 5/31/2005 $10,566 $10,981 $11,326 6/30/2005 $10,624 $10,996 $11,429 7/31/2005 $10,958 $11,405 $11,831 8/31/2005 $11,006 $11,301 $11,926 9/30/2005 $11,168 $11,393 $12,239 10/31/2005 $10,910 $11,203 $11,944 11/30/2005 $11,273 $11,626 $12,349 12/31/2005 $11,488 $11,631 $12,626 1/31/2006 $11,916 $11,938 $13,192 2/28/2006 $11,945 $11,971 $13,178 3/31/2006 $12,169 $12,120 $13,473 4/30/2006 $12,318 $12,283 $13,890 5/31/2006 $11,903 $11,929 $13,428 6/30/2006 $11,942 $11,945 $13,429 7/31/2006 $11,922 $12,019 $13,516 8/31/2006 $12,189 $12,305 $13,874 9/30/2006 $12,377 $12,622 $14,043 10/31/2006 $12,753 $13,033 $14,562 11/30/2006 $13,030 $13,281 $14,926 12/31/2006 $13,175 $13,467 $15,233 1/31/2007 $13,461 $13,671 $15,416 2/28/2007 $13,257 $13,404 $15,342 3/31/2007 $13,429 $13,554 $15,629 4/30/2007 $13,948 $14,154 $16,328 5/31/2007 $14,353 $14,648 $16,802 6/30/2007 $14,280 $14,405 $16,678 7/31/2007 $13,865 $13,958 $16,312 8/31/2007 $13,928 $14,167 $16,307 9/30/2007 $14,436 $14,697 $17,088 10/31/2007 $14,789 $14,931 $17,616 11/30/2007 $14,249 $14,307 $16,904 12/31/2007 $14,069 $14,207 $16,690 1/31/2008 $12,969 $13,355 $15,419 2/29/2008 $12,616 $12,921 $15,337 3/31/2008 $12,496 $12,866 $15,197 4/30/2008 $13,142 $13,492 $16,008 5/31/2008 $13,437 $13,667 $16,272 6/30/2008 $12,266 $12,515 $14,980 7/31/2008 $12,223 $12,410 $14,618 8/31/2008 $12,255 $12,589 $14,419 9/30/2008 $10,975 $11,467 $12,711 10/31/2008 $ 9,027 $ 9,541 $10,304 11/30/2008 $ 8,327 $ 8,857 $ 9,644 12/31/2008 $ 8,542 $ 8,951 $ 9,958 1/31/2009 $ 7,909 $ 8,197 $ 9,089 2/28/2009 $ 7,242 $ 7,324 $ 8,165 3/31/2009 $ 7,742 $ 7,965 $ 8,785 4/30/2009 $ 8,597 $ 8,728 $ 9,780 5/31/2009 $ 9,042 $ 9,216 $10,678 6/30/2009 $ 9,067 $ 9,234 $10,634 7/31/2009 $ 9,791 $ 9,933 $11,538 8/31/2009 $10,081 $10,291 $12,020 9/30/2009 $10,582 $10,675 $12,503 10/31/2009 $10,371 $10,477 $12,283 11/30/2009 $10,760 $11,105 $12,791 12/31/2009 $11,160 $11,320 $13,025
AVERAGE ANNUAL TOTAL RETURN
CLASS C 12/31/09 - ------- -------- 1-Year +28.70% 5-Year +0.26% Since Inception (8/2/04) +2.47%
CLASS C (8/2/04-12/31/09)
FRANKLIN TEMPLETON PERSPECTIVES S&P 500 MSCI WORLD DATE ALLOCATION FUND - CLASS C INDEX INDEX ---- ------------------------------- ------- ---------- 8/2/2004 $10,000 $10,000 $10,000 8/31/2004 $10,090 $10,040 $10,048 9/30/2004 $10,250 $10,149 $10,241 10/31/2004 $10,430 $10,304 $10,494 11/30/2004 $10,910 $10,721 $11,050 12/31/2004 $11,266 $11,086 $11,475 1/31/2005 $10,964 $10,816 $11,219 2/28/2005 $11,286 $11,043 $11,580 3/31/2005 $11,115 $10,848 $11,360 4/30/2005 $10,902 $10,642 $11,120 5/31/2005 $11,155 $10,981 $11,326 6/30/2005 $11,206 $10,996 $11,429 7/31/2005 $11,550 $11,405 $11,831 8/31/2005 $11,591 $11,301 $11,926 9/30/2005 $11,763 $11,393 $12,239 10/31/2005 $11,479 $11,203 $11,944 11/30/2005 $11,854 $11,626 $12,349 12/31/2005 $12,080 $11,631 $12,626 1/31/2006 $12,512 $11,938 $13,192 2/28/2006 $12,543 $11,971 $13,178 3/31/2006 $12,769 $12,120 $13,473 4/30/2006 $12,915 $12,283 $13,890 5/31/2006 $12,476 $11,929 $13,428 6/30/2006 $12,518 $11,945 $13,429 7/31/2006 $12,487 $12,019 $13,516 8/31/2006 $12,758 $12,305 $13,874 9/30/2006 $12,946 $12,622 $14,043 10/31/2006 $13,333 $13,033 $14,562 11/30/2006 $13,615 $13,281 $14,926 12/31/2006 $13,761 $13,467 $15,233 1/31/2007 $14,050 $13,671 $15,416 2/28/2007 $13,836 $13,404 $15,342 3/31/2007 $14,006 $13,554 $15,629 4/30/2007 $14,541 $14,154 $16,328 5/31/2007 $14,955 $14,648 $16,802 6/30/2007 $14,868 $14,405 $16,678 7/31/2007 $14,421 $13,958 $16,312 8/31/2007 $14,486 $14,167 $16,307 9/30/2007 $15,010 $14,697 $17,088 10/31/2007 $15,370 $14,931 $17,616 11/30/2007 $14,792 $14,307 $16,904 12/31/2007 $14,602 $14,207 $16,690 1/31/2008 $13,452 $13,355 $15,419 2/29/2008 $13,084 $12,921 $15,337 3/31/2008 $12,947 $12,866 $15,197 4/30/2008 $13,610 $13,492 $16,008 5/31/2008 $13,896 $13,667 $16,272 6/30/2008 $12,684 $12,515 $14,980 7/31/2008 $12,638 $12,410 $14,618 8/31/2008 $12,661 $12,589 $14,419 9/30/2008 $11,334 $11,467 $12,711 10/31/2008 $ 9,321 $ 9,541 $10,304 11/30/2008 $ 8,589 $ 8,857 $ 9,644 12/31/2008 $ 8,798 $ 8,951 $ 9,958 1/31/2009 $ 8,143 $ 8,197 $ 9,089 2/28/2009 $ 7,454 $ 7,324 $ 8,165 3/31/2009 $ 7,960 $ 7,965 $ 8,785 4/30/2009 $ 8,832 $ 8,728 $ 9,780 5/31/2009 $ 9,292 $ 9,216 $10,678 6/30/2009 $ 9,318 $ 9,234 $10,634 7/31/2009 $10,056 $ 9,933 $11,538 8/31/2009 $10,332 $10,291 $12,020 9/30/2009 $10,850 $10,675 $12,503 10/31/2009 $10,620 $10,477 $12,283 11/30/2009 $11,012 $11,105 $12,791 12/31/2009 $11,411 $11,320 $13,025
Annual Report | 27 Performance Summary (CONTINUED) AVERAGE ANNUAL TOTAL RETURN
CLASS R 12/31/09 - ------- -------- 1-Year +30.34% 5-Year +0.77% Since Inception (8/2/04) +2.98%
CLASS R (8/2/04-12/31/09)
FRANKLIN TEMPLETON PERSPECTIVES S&P 500 MSCI WORLD DATE ALLOCATION FUND - CLASS R INDEX INDEX - ---------- ------------------------------- ------- ---------- 8/2/2004 $10,000 $10,000 $10,000 8/31/2004 $10,080 $10,040 $10,048 9/30/2004 $10,250 $10,149 $10,241 10/31/2004 $10,440 $10,304 $10,494 11/30/2004 $10,930 $10,721 $11,050 12/31/2004 $11,281 $11,086 $11,475 1/31/2005 $10,989 $10,816 $11,219 2/28/2005 $11,322 $11,043 $11,580 3/31/2005 $11,159 $10,848 $11,360 4/30/2005 $10,946 $10,642 $11,120 5/31/2005 $11,199 $10,981 $11,326 6/30/2005 $11,260 $10,996 $11,429 7/31/2005 $11,605 $11,405 $11,831 8/31/2005 $11,655 $11,301 $11,926 9/30/2005 $11,828 $11,393 $12,239 10/31/2005 $11,554 $11,203 $11,944 11/30/2005 $11,939 $11,626 $12,349 12/31/2005 $12,168 $11,631 $12,626 1/31/2006 $12,612 $11,938 $13,192 2/28/2006 $12,643 $11,971 $13,178 3/31/2006 $12,880 $12,120 $13,473 4/30/2006 $13,037 $12,283 $13,890 5/31/2006 $12,587 $11,929 $13,428 6/30/2006 $12,639 $11,945 $13,429 7/31/2006 $12,608 $12,019 $13,516 8/31/2006 $12,890 $12,305 $13,874 9/30/2006 $13,089 $12,622 $14,043 10/31/2006 $13,487 $13,033 $14,562 11/30/2006 $13,781 $13,281 $14,926 12/31/2006 $13,931 $13,467 $15,233 1/31/2007 $14,223 $13,671 $15,416 2/28/2007 $14,017 $13,404 $15,342 3/31/2007 $14,200 $13,554 $15,629 4/30/2007 $14,738 $14,154 $16,328 5/31/2007 $15,166 $14,648 $16,802 6/30/2007 $15,078 $14,405 $16,678 7/31/2007 $14,639 $13,958 $16,312 8/31/2007 $14,705 $14,167 $16,307 9/30/2007 $15,243 $14,697 $17,088 10/31/2007 $15,616 $14,931 $17,616 11/30/2007 $15,034 $14,307 $16,904 12/31/2007 $14,848 $14,207 $16,690 1/31/2008 $13,687 $13,355 $15,419 2/29/2008 $13,315 $12,921 $15,337 3/31/2008 $13,188 $12,866 $15,197 4/30/2008 $13,869 $13,492 $16,008 5/31/2008 $14,169 $13,667 $16,272 6/30/2008 $12,934 $12,515 $14,980 7/31/2008 $12,888 $12,410 $14,618 8/31/2008 $12,922 $12,589 $14,419 9/30/2008 $11,571 $11,467 $12,711 10/31/2008 $ 9,516 $ 9,541 $10,304 11/30/2008 $ 8,776 $ 8,857 $ 9,644 12/31/2008 $ 8,992 $ 8,951 $ 9,958 1/31/2009 $ 8,327 $ 8,197 $ 9,089 2/28/2009 $ 7,626 $ 7,324 $ 8,165 3/31/2009 $ 8,151 $ 7,965 $ 8,785 4/30/2009 $ 9,051 $ 8,728 $ 9,780 5/31/2009 $ 9,518 $ 9,216 $10,678 6/30/2009 $ 9,545 $ 9,234 $10,634 7/31/2009 $10,306 $ 9,933 $11,538 8/31/2009 $10,599 $10,291 $12,020 9/30/2009 $11,126 $10,675 $12,503 10/31/2009 $10,892 $10,477 $12,283 11/30/2009 $11,302 $11,105 $12,791 12/31/2009 $11,721 $11,320 $13,025
AVERAGE ANNUAL TOTAL RETURN
ADVISOR CLASS 12/31/09 - ------------- -------- 1-Year +31.02% 5-Year +1.30% Since Inception (8/2/04) +3.51%
ADVISOR CLASS (8/2/04-12/31/09)
FRANKLIN TEMPLETON PERSPECTIVES S&P 500 MSCI WORLD DATE ALLOCATION FUND - ADVISOR CLASS INDEX INDEX - ---------- ------------------------------- ------- ---------- 8/2/2004 $10,000 $10,000 $10,000 8/31/2004 $10,090 $10,040 $10,048 9/30/2004 $10,260 $10,149 $10,241 10/31/2004 $10,450 $10,304 $10,494 11/30/2004 $10,950 $10,721 $11,050 12/31/2004 $11,301 $11,086 $11,475 1/31/2005 $11,008 $10,816 $11,219 2/28/2005 $11,341 $11,043 $11,580 3/31/2005 $11,178 $10,848 $11,360 4/30/2005 $10,975 $10,642 $11,120 5/31/2005 $11,239 $10,981 $11,326 6/30/2005 $11,300 $10,996 $11,429 7/31/2005 $11,655 $11,405 $11,831 8/31/2005 $11,705 $11,301 $11,926 9/30/2005 $11,888 $11,393 $12,239 10/31/2005 $11,614 $11,203 $11,944 11/30/2005 $12,010 $11,626 $12,349 12/31/2005 $12,241 $11,631 $12,626 1/31/2006 $12,697 $11,938 $13,192 2/28/2006 $12,728 $11,971 $13,178 3/31/2006 $12,977 $12,120 $13,473 4/30/2006 $13,134 $12,283 $13,890 5/31/2006 $12,693 $11,929 $13,428 6/30/2006 $12,745 $11,945 $13,429 7/31/2006 $12,724 $12,019 $13,516 8/31/2006 $13,019 $12,305 $13,874 9/30/2006 $13,218 $12,622 $14,043 10/31/2006 $13,618 $13,033 $14,562 11/30/2006 $13,923 $13,281 $14,926 12/31/2006 $14,085 $13,467 $15,233 1/31/2007 $14,390 $13,671 $15,416 2/28/2007 $14,183 $13,404 $15,342 3/31/2007 $14,367 $13,554 $15,629 4/30/2007 $14,932 $14,154 $16,328 5/31/2007 $15,363 $14,648 $16,802 6/30/2007 $15,286 $14,405 $16,678 7/31/2007 $14,843 $13,958 $16,312 8/31/2007 $14,921 $14,167 $16,307 9/30/2007 $15,496 $14,697 $17,088 10/31/2007 $15,884 $14,931 $17,616 11/30/2007 $15,297 $14,307 $16,904 12/31/2007 $15,107 $14,207 $16,690 1/31/2008 $13,930 $13,355 $15,419 2/29/2008 $13,564 $12,921 $15,337 3/31/2008 $13,436 $12,866 $15,197 4/30/2008 $14,138 $13,492 $16,008 5/31/2008 $14,442 $13,667 $16,272 6/30/2008 $13,190 $12,515 $14,980 7/31/2008 $13,155 $12,410 $14,618 8/31/2008 $13,190 $12,589 $14,419 9/30/2008 $11,821 $11,467 $12,711 10/31/2008 $ 9,726 $ 9,541 $10,304 11/30/2008 $ 8,965 $ 8,857 $ 9,644 12/31/2008 $ 9,200 $ 8,951 $ 9,958 1/31/2009 $ 8,520 $ 8,197 $ 9,089 2/28/2009 $ 7,804 $ 7,324 $ 8,165 3/31/2009 $ 8,341 $ 7,965 $ 8,785 4/30/2009 $ 9,259 $ 8,728 $ 9,780 5/31/2009 $ 9,749 $ 9,216 $10,678 6/30/2009 $ 9,776 $ 9,234 $10,634 7/31/2009 $10,566 $ 9,933 $11,538 8/31/2009 $10,877 $10,291 $12,020 9/30/2009 $11,415 $10,675 $12,503 10/31/2009 $11,188 $10,477 $12,283 11/30/2009 $11,619 $11,105 $12,791 12/31/2009 $12,053 $11,320 $13,025
28 | Annual Report Performance Summary (CONTINUED) ENDNOTES BECAUSE THE FUND INVESTS IN UNDERLYING FUNDS THAT MAY ENGAGE IN A VARIETY OF INVESTMENT STRATEGIES INVOLVING CERTAIN RISKS, THE FUND IS SUBJECT TO THESE SAME RISKS. STOCKS HISTORICALLY HAVE OUTPERFORMED OTHER ASSET CLASSES OVER THE LONG TERM, BUT TEND TO FLUCTUATE MORE DRAMATICALLY OVER THE SHORT TERM. FOREIGN INVESTING, ESPECIALLY IN DEVELOPING COUNTRIES, CARRIES ADDITIONAL RISKS SUCH AS CURRENCY AND MARKET VOLATILITY, AND POLITICAL OR SOCIAL INSTABILITY. THE PORTFOLIO MAY INCLUDE INVESTMENTS IN THE TECHNOLOGY SECTOR, WHICH HAS BEEN AMONG THE MOST VOLATILE IN THE MARKET. SMALLER OR RELATIVELY NEW OR UNSEASONED COMPANIES CAN BE PARTICULARLY SENSITIVE TO CHANGING ECONOMIC CONDITIONS, AND THEIR PROSPECTS FOR GROWTH ARE LESS CERTAIN THAN THOSE OF LARGER, MORE ESTABLISHED COMPANIES. VALUE SECURITIES MAY NOT INCREASE IN PRICE AS ANTICIPATED OR MAY DECLINE FURTHER IN VALUE. THE FUND'S PROSPECTUS ALSO INCLUDES A DESCRIPTION OF THE MAIN INVESTMENT RISKS. CLASS C: These shares have higher annual fees and expenses than Class A shares. CLASS R: Shares are available to certain eligible investors as described in the prospectus. These shares have higher annual fees and expenses than Class A shares. ADVISOR CLASS: Shares are available to certain eligible investors as described in the prospectus. (1.) If the administrator had not waived fees, the Fund's total returns would have been lower. (2.) Cumulative total return represents the change in value of an investment over the periods indicated. (3.) Average annual total return represents the average annual change in value of an investment over the periods indicated. (4.) These figures represent the value of a hypothetical $10,000 investment in the Fund over the periods indicated. (5.) Figures are as stated in the Fund's prospectus current as of the date of this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses to become higher than the figures shown. (6.) Source: (C) 2009 Morningstar. The S&P 500 consists of 500 stocks chosen for market size, liquidity and industry group representation. Each stock's weight in the index is proportionate to its market value. The S&P 500 is one of the most widely used benchmarks of U.S. equity performance. The MSCI World Index is a free float-adjusted, market capitalization-weighted index designed to measure equity market performance in global developed markets. Annual Report | 29 Your Fund's Expenses FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION FUND As a Fund shareholder, you can incur two types of costs: - - Transaction costs, including sales charges (loads) on Fund purchases; and - - Ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses. The following table shows ongoing costs of investing in the Fund and can help you understand these costs and compare them with those of other mutual funds. The table assumes a $1,000 investment held for the six months indicated. ACTUAL FUND EXPENSES The first line (Actual) for each share class listed in the table provides actual account values and expenses. The "Ending Account Value" is derived from the Fund's actual return, which includes the effect of Fund expenses. You can estimate the expenses you paid during the period by following these steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS ILLUSTRATION: 1. Divide your account value by $1,000. IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6. 2. Multiply the result by the number under the heading "Expenses Paid During Period." IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50. In this illustration, the estimated expenses paid this period are $64.50. HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS Information in the second line (Hypothetical) for each class in the table can help you compare ongoing costs of investing in the Fund with those of other mutual funds. This information may not be used to estimate the actual ending account balance or expenses you paid during the period. The hypothetical "Ending Account Value" is based on the actual expense ratio for each class and an assumed 5% annual rate of return before expenses, which does not represent the Fund's actual return. The figure under the heading "Expenses Paid During Period" shows the hypothetical expenses your account would have incurred under this scenario. You can compare this figure with the 5% hypothetical examples that appear in shareholder reports of other funds. 30 | Annual Report Your Fund's Expenses (CONTINUED) PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES. Therefore, the second line for each class is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transaction costs were included, your total costs would have been higher. Please refer to the Fund prospectus for additional information on operating expenses.
BEGINNING ENDING EXPENSES PAID EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* DURING PERIOD** 7/1/09 12/31/09 7/1/09-12/31/09 7/1/09-12/31/09 ------------- ------------- --------------- --------------- CLASS A Actual $1,000 $1,230.80 $2.25 $ 6.92 Hypothetical (5% return before expenses) $1,000 $1,023.19 $2.04 $ 6.26 CLASS C Actual $1,000 $1,224.60 $6.28 $10.93 Hypothetical (5% return before expenses) $1,000 $1,019.56 $5.70 $ 9.91 CLASS R Actual $1,000 $1,228.00 $3.48 $ 8.14 Hypothetical (5% return before expenses) $1,000 $1,022.08 $3.16 $ 7.37 ADVISOR CLASS Actual $1,000 $1,232.90 $0.68 $ 5.35 Hypothetical (5% return before expenses) $1,000 $1,024.60 $0.61 $ 4.84
* Expenses are calculated using the most recent six-month expense ratio excluding expenses of the underlying funds, net of expense waivers, annualized for each class (A: 0.40%; C: 1.12%; R: 0.62%; and Advisor: 0.12%), multiplied by the average account value over the period, multiplied by 184/365 to reflect the one-half year period. A portion of the Fund's expenses have been paid by the underlying funds in which the Fund invests. ** Expenses are calculated using the most recent six-month expense ratio including expenses of the underlying funds, net of expense waivers, annualized for each class (A: 1.23%; C: 1.95%; R: 1.45%; and Advisor: 0.95%), multiplied by the average account value over the period, multiplied by 184/365 to reflect the one-half year period. A portion of the Fund's expenses have been paid by the underlying funds in which the Fund invests. Annual Report | 31 Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND
YEAR ENDED DECEMBER 31, ------------------------------------------------------- CLASS A 2009 2008 2007 2006 2005 - ------- -------- -------- -------- -------- -------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year .................... $ 8.46 $ 14.22 $ 14.09 $ 12.71 $ 12.20 -------- -------- -------- -------- -------- Income from investment operations(a): Net investment income(b, c) ........................ 0.12 0.12 0.15 0.11 0.09 Net realized and unrealized gains (losses) ......... 2.64 (5.46) 0.57 1.81 0.71 -------- -------- -------- -------- -------- Total from investment operations ...................... 2.76 (5.34) 0.72 1.92 0.80 -------- -------- -------- -------- -------- Less distributions from: Net investment income and short term gains received from Underlying Funds .................. (0.14) (0.13) (0.17) (0.16) (0.10) Net realized gains ................................. -- (0.29) (0.42) (0.38) (0.19) -------- -------- -------- -------- -------- Total distributions ................................... (0.14) (0.42) (0.59) (0.54) (0.29) -------- -------- -------- -------- -------- Redemption fees(d) .................................... -- --(e) --(e) --(e) --(e) -------- -------- -------- -------- -------- Net asset value, end of year .......................... $ 11.08 $ 8.46 $ 14.22 $ 14.09 $ 12.71 ======== ======== ======== ======== ======== Total return(f) ....................................... 32.74% (38.13)% 5.20% 15.25% 6.63% RATIOS TO AVERAGE NET ASSETS Expenses before waiver and payments by affiliates(g) .. 0.51% 0.62% 0.64% 0.65% 0.66% Expenses net of waiver and payments by affiliates(g) .. 0.38% 0.48% 0.50% 0.50% 0.58% Net investment income(c) .............................. 1.31% 1.01% 0.99% 0.82% 0.72% SUPPLEMENTAL DATA Net assets, end of year (000's) ....................... $319,688 $278,539 $497,314 $458,460 $353,016 Portfolio turnover rate ............................... 2.01% 3.20% 1.72% 1.66% 2.49%
(a) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (b) Based on average daily shares outstanding. (c) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (d) Effective September 1, 2008, the redemption fee was eliminated. (e) Amount rounds to less than $0.01 per share. (f) Total return does not reflect sales commissions or contingent deferred sales charges, if applicable. (g) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.82% for the year ended December 31, 2009. The accompanying notes are an integral part of these financial statements. 32| Annual Report Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND
YEAR ENDED DECEMBER 31, ------------------------------------------------------- CLASS B 2009 2008 2007 2006 2005 - ------- -------- -------- -------- -------- -------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year .................... $ 8.44 $ 14.12 $ 13.99 $ 12.62 $ 12.12 ------- ------- ------- ------- ------- Income from investment operations(a): Net investment income(b, c) ........................ 0.05 0.03 0.05 0.01 0.01 Net realized and unrealized gains (losses) ......... 2.62 (5.38) 0.57 1.81 0.70 ------- ------- ------- ------- ------- Total from investment operations ...................... 2.67 (5.35) 0.62 1.82 0.71 ------- ------- ------- ------- ------- Less distributions from: Net investment income and short term gains received from Underlying Funds .................. (0.07) (0.04) (0.07) (0.07) (0.02) Net realized gains ................................. -- (0.29) (0.42) (0.38) (0.19) ------- ------- ------- ------- ------- Total distributions ................................... (0.07) (0.33) (0.49) (0.45) (0.21) ------- ------- ------- ------- ------- Redemption fees(d) .................................... -- --(e) --(e) --(e) --(e) ------- ------- ------- ------- ------- Net asset value, end of year .......................... $ 11.04 $ 8.44 $ 14.12 $ 13.99 $ 12.62 ======= ======= ======= ======= ======= Total return(f) ....................................... 31.73% (38.53)% 4.49% 14.55% 5.89% RATIOS TO AVERAGE NET ASSETS Expenses before waiver and payments by affiliates(g) .. 1.23% 1.32% 1.31% 1.30% 1.31% Expenses net of waiver and payments by affiliates(g) .. 1.10% 1.18% 1.16% 1.15% 1.23% Net investment income(c) .............................. 0.59% 0.31% 0.32% 0.17% 0.07% SUPPLEMENTAL DATA Net assets, end of year (000's) ....................... $39,093 $35,616 $72,530 $76,408 $71,496 Portfolio turnover rate ............................... 2.01% 3.20% 1.72% 1.66% 2.49%
(a) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (b) Based on average daily shares outstanding. (c) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (d) Effective September 1, 2008, the redemption fee was eliminated. (e) Amount rounds to less than $0.01 per share. (f) Total return does not reflect sales commissions or contingent deferred sales charges, if applicable. (g) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.82% for the year ended December 31, 2009. The accompanying notes are an integral part of these financial statements. Annual Report | 33 Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND
YEAR ENDED DECEMBER 31, ------------------------------------------------------- CLASS C 2009 2008 2007 2006 2005 - ------- -------- -------- -------- -------- -------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year .................... $ 8.40 $ 14.08 $ 13.96 $ 12.61 $ 12.11 -------- ------- -------- -------- -------- Income from investment operations(a): Net investment income(b, c) ........................ 0.05 0.03 0.05 0.02 0.01 Net realized and unrealized gains (losses) ......... 2.61 (5.37) 0.57 1.79 0.71 -------- ------- -------- -------- -------- Total from investment operations ...................... 2.66 (5.34) 0.62 1.81 0.72 -------- ------- -------- -------- -------- Less distributions from: Net investment income and short term gains received from Underlying Funds .................. (0.07) (0.05) (0.08) (0.08) (0.03) Net realized gains ................................. -- (0.29) (0.42) (0.38) (0.19) -------- ------- -------- -------- -------- Total distributions ................................... (0.07) (0.34) (0.50) (0.46) (0.22) -------- ------- -------- -------- -------- Redemption fees(d) .................................... -- --(e) --(e) --(e) --(e) -------- ------- -------- -------- -------- Net asset value, end of year .......................... $ 10.99 $ 8.40 $ 14.08 $ 13.96 $ 12.61 ======== ======= ======== ======== ======== Total return(f) ....................................... 31.80% (38.58)% 4.50% 14.48% 6.02% RATIOS TO AVERAGE NET ASSETS Expenses before waiver and payments by affiliates(g) .. 1.23% 1.31% 1.30% 1.29% 1.29% Expenses net of waiver and payments by affiliates(g) .. 1.10% 1.17% 1.16% 1.14% 1.21% Net investment income(c) .............................. 0.59% 0.32% 0.33% 0.18% 0.09% SUPPLEMENTAL DATA Net assets, end of year (000's) ....................... $113,040 $99,663 $181,951 $166,688 $132,459 Portfolio turnover rate ............................... 2.01% 3.20% 1.72% 1.66% 2.49%
(a) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (b) Based on average daily shares outstanding. (c) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (d) Effective September 1, 2008, the redemption fee was eliminated. (e) Amount rounds to less than $0.01 per share. (f) Total return does not reflect sales commissions or contingent deferred sales charges, if applicable. (g) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.82% for the year ended December 31, 2009. The accompanying notes are an integral part of these financial statements. 34 | Annual Report Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND
YEAR ENDED DECEMBER 31, ---------------------------------------------- CLASS R 2009 2008 2007 2006 2005 - ------- ------ ------- ------ ------ ------ PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year ........................ $ 8.46 $ 14.20 $14.07 $12.69 $12.18 ------ ------- ------ ------ ------ Income from investment operations(a): Net investment income(b, c) ............................ 0.11 0.08 0.12 0.09 0.05 Net realized and unrealized gains (losses) ............. 2.63 (5.43) 0.57 1.81 0.73 ------ ------- ------ ------ ------ Total from investment operations .......................... 2.74 (5.35) 0.69 1.90 0.78 ------ ------- ------ ------ ------ Less distributions from: Net investment income and short term gains received from Underlying Funds .................................... (0.12) (0.10) (0.14) (0.14) (0.08) Net realized gains ..................................... -- (0.29) (0.42) (0.38) (0.19) ------ ------- ------ ------ ------ Total distributions ....................................... (0.12) (0.39) (0.56) (0.52) (0.27) ------ ------- ------ ------ ------ Redemption fees(d) ........................................ -- --(e) --(e) --(e) --(e) ------ ------- ------ ------ ------ Net asset value, end of year .............................. $11.08 $ 8.46 $14.20 $14.07 $12.69 ====== ======= ====== ====== ====== Total return(f) ........................................... 32.49% (38.28)% 5.02% 15.10% 6.43% RATIOS TO AVERAGE NET ASSETS Expenses before waiver and payments by affiliates(g) ...... 0.74% 0.82% 0.81% 0.80% 0.81% Expenses net of waiver and payments by affiliates(g) ...... 0.61% 0.68% 0.66% 0.65% 0.73% Net investment income(c) .................................. 1.08% 0.81% 0.82% 0.67% 0.57% SUPPLEMENTAL DATA Net assets, end of year (000's) ........................... $1,365 $ 1,182 $2,602 $2,534 $2,190 Portfolio turnover rate ................................... 2.01% 3.20% 1.72% 1.66% 2.49%
(a) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (b) Based on average daily shares outstanding. (c) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (d) Effective September 1, 2008, the redemption fee was eliminated. (e) Amount rounds to less than $0.01 per share. (f) Total return does not reflect sales commissions or contingent deferred sales charges, if applicable. (g) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.82% for the year ended December 31, 2009. The accompanying notes are an integral part of these financial statements. Annual Report | 35 Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND
YEAR ENDED DECEMBER 31, ----------------------------------------------- ADVISOR CLASS 2009 2008 2007 2006 2005 - ------------- ------ ------- ------ ------ ------ PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year ........................ $ 8.47 $ 14.25 $14.12 $12.73 $12.21 ------ ------- ------ ------ ------ Income from investment operations(a): Net investment income(b, c) ............................ 0.15 0.15 0.19 0.15 0.13 Net realized and unrealized gains (losses) ............. 2.64 (5.47) 0.58 1.83 0.72 ------ ------- ------ ------ ------ Total from investment operations .......................... 2.79 (5.32) 0.77 1.98 0.85 ------ ------- ------ ------ ------ Less distributions from: Net investment income and short term gains received from Underlying Funds .................................... (0.17) (0.17) (0.22) (0.21) (0.14) Net realized gains ..................................... -- (0.29) (0.42) (0.38) (0.19) ------ ------- ------ ------ ------ Total distributions ....................................... (0.17) (0.46) (0.64) (0.59) (0.33) ------ ------- ------ ------ ------ Redemption fees(d) ........................................ -- --(e) --(e) --(e) --(e) ------ ------- ------ ------ ------ Net asset value, end of year .............................. $11.09 $ 8.47 $14.25 $14.12 $12.73 ====== ======= ====== ====== ====== Total return .............................................. 33.01% (37.92)% 5.53% 15.65% 6.93% RATIOS TO AVERAGE NET ASSETS Expenses before waiver and payments by affiliates(f) ...... 0.24% 0.32% 0.31% 0.30% 0.31% Expenses net of waiver and payments by affiliates(f) ...... 0.11% 0.18% 0.16% 0.15% 0.23% Net investment income(c) .................................. 1.58% 1.31% 1.32% 1.17% 1.07% SUPPLEMENTAL DATA Net assets, end of year (000's) ........................... $1,915 $ 1,654 $3,243 $3,073 $2,792 Portfolio turnover rate ................................... 2.01% 3.20% 1.72% 1.66% 2.49%
(a) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (b) Based on average daily shares outstanding. (c) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (d) Effective September 1, 2008, the redemption fee was eliminated. (e) Amount rounds to less than $0.01 per share. (f) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.82% for the year ended December 31, 2009. The accompanying notes are an integral part of these financial statements. 36 | Annual Report Franklin Templeton Fund Allocator Series STATEMENT OF INVESTMENTS, DECEMBER 31, 2009
FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND SHARES VALUE -------------------------------------------- --------- ------------ INVESTMENTS IN UNDERLYING FUNDS(a) DOMESTIC EQUITY 75.1% Franklin Growth Fund, Advisor Class ......................................... 6,121,055 $238,782,346 Mutual Shares Fund, Class Z ................................................. 6,155,883 118,131,393 ------------ 356,913,739 ------------ FOREIGN EQUITY 24.9% Templeton Growth Fund Inc., Advisor Class ................................... 7,037,625 118,232,092 ------------ TOTAL INVESTMENTS IN UNDERLYING FUNDS BEFORE SHORT TERM INVESTMENTS (COST $485,277,633) 100.0% ............................................... 475,145,831 ------------ SHORT TERM INVESTMENTS (COST $853,209) 0.2% MONEY MARKET FUNDS 0.2% (b) Institutional Fiduciary Trust Money Market Portfolio, 0.00% ................. 853,209 853,209 ------------ TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $486,130,842) 100.2% ............ 475,999,040 OTHER ASSETS, LESS LIABILITIES (0.2)% ....................................... (898,552) ------------ NET ASSETS 100.0% ........................................................... $475,100,488 ============
(a) See Note 6 regarding investments in Underlying Funds. (b) The rate shown is the annualized seven-day yield at period end. The accompanying notes are an integral part of these financial statements. Annual Report | 37 Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND
YEAR ENDED DECEMBER 31, ------------------------------------------------------------------ CLASS A 2009 2008 2007 2006 2005 - ------- ---------- ---------- ----------- ---------- ---------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year ........................ $ 7.83 $ 13.50 $ 13.98 $ 12.50 $ 12.28 ---------- ---------- ----------- ---------- ---------- Income from investment operations(a): Net investment income(b, c) ............................ 0.33 0.37 0.43 0.40 0.37 Net realized and unrealized gains (losses) ............. 2.06 (5.38) --(d) 1.99 0.40 ---------- ---------- ----------- ---------- ---------- Total from investment operations .......................... 2.39 (5.01) 0.43 2.39 0.77 ---------- ---------- ----------- ---------- ---------- Less distributions from: Net investment income and short term gains received from Underlying Funds .................................... (0.40) (0.38) (0.44) (0.44) (0.30) Net realized gains ..................................... -- (0.28) (0.47) (0.47) (0.25) ---------- ---------- ----------- ---------- ---------- Total distributions ....................................... (0.40) (0.66) (0.91) (0.91) (0.55) ---------- ---------- ----------- ---------- ---------- Redemption fees(e) ........................................ -- --(d) --(d) --(d) --(d) ---------- ---------- ----------- ---------- ---------- Net asset value, end of year .............................. $ 9.82 $ 7.83 $ 13.50 $ 13.98 $ 12.50 ========== ========== =========== ========== ========== Total return(f) ........................................... 31.05% (37.66)% 3.12% 19.34% 6.31% RATIOS TO AVERAGE NET ASSETS Expenses before waiver and payments by affiliates(g) ...... 0.44% 0.54% 0.55% 0.57% 0.58% Expenses net of waiver and payments by affiliates(g) ...... 0.37% 0.48% 0.50% 0.50% 0.54% Net investment income(c) .................................. 3.94% 3.27% 2.99% 3.00% 2.98% SUPPLEMENTAL DATA Net assets, end of year (000's) ........................... $5,333,275 $5,015,566 $10,161,473 $7,288,143 $4,051,695 Portfolio turnover rate ................................... 4.32% 4.16% 0.73% 0.96% 0.74%
(a) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (b) Based on average daily shares outstanding. (c) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (d) Amount rounds to less than $0.01 per share. (e) Effective September 1, 2008, the redemption fee was eliminated. (f) Total return does not reflect sales commissions or contingent deferred sales charges, if applicable. (g) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.76% for the year ended December 31, 2009. The accompanying notes are an integral part of these financial statements. 38 | Annual Report Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND
YEAR ENDED DECEMBER 31, ------------------------------------------------------- CLASS B 2009 2008 2007 2006 2005 - ------- -------- -------- -------- -------- -------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year .................... $ 7.84 $ 13.45 $ 13.93 $ 12.46 $ 12.23 -------- -------- -------- -------- -------- Income from investment operations(a): Net investment income(b, c) ........................ 0.27 0.28 0.35 0.28 0.26 Net realized and unrealized gains (losses) ......... 2.05 (5.32) (0.02) 2.00 0.43 -------- -------- -------- -------- -------- Total from investment operations ...................... 2.32 (5.04) 0.33 2.28 0.69 -------- -------- -------- -------- -------- Less distributions from: Net investment income and short term gains received from Underlying Funds ........................... (0.33) (0.29) (0.34) (0.34) (0.21) Net realized gains ................................. -- (0.28) (0.47) (0.47) (0.25) -------- -------- -------- -------- -------- Total distributions ................................... (0.33) (0.57) (0.81) (0.81) (0.46) -------- -------- -------- -------- -------- Redemption fees(d) .................................... -- --(e) --(e) --(e) --(e) -------- -------- -------- -------- -------- Net asset value, end of year .......................... $ 9.83 $ 7.84 $ 13.45 $ 13.93 $ 12.46 ======== ======== ======== ======== ======== Total return(f) ....................................... 30.09% (38.05)% 2.36% 18.53% 5.58% RATIOS TO AVERAGE NET ASSETS Expenses before waiver and payments by affiliates(g) .. 1.18% 1.24% 1.22% 1.22% 1.23% Expenses net of waiver and payments by affiliates(g) .. 1.11% 1.18% 1.17% 1.15% 1.19% Net investment income(c) .............................. 3.20% 2.57% 2.32% 2.35% 2.33% SUPPLEMENTAL DATA Net assets, end of year (000's) ....................... $356,094 $344,396 $722,716 $766,452 $688,590 Portfolio turnover rate ............................... 4.32% 4.16% 0.73% 0.96% 0.74%
(a) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (b) Based on average daily shares outstanding. (c) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (d) Effective September 1, 2008, the redemption fee was eliminated. (e) Amount rounds to less than $0.01 per share. (f) Total return does not reflect sales commissions or contingent deferred sales charges, if applicable. (g) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.76% for the year ended December 31, 2009. The accompanying notes are an integral part of these financial statements. Annual Report | 39 Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND
YEAR ENDED DECEMBER 31, ----------------------------------------------------------------- CLASS C 2009 2008 2007 2006 2005 - ------- ---------- ---------- ---------- ---------- ---------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year .................... $ 7.74 $ 13.29 $ 13.78 $ 12.36 $ 12.23 ---------- ---------- ---------- ---------- ---------- Income from investment operations(a): Net investment income(b, c) ........................ 0.27 0.28 0.29 0.31 0.29 Net realized and unrealized gains (losses) ......... 2.02 (5.26) 0.05 1.95 0.39 ---------- ---------- ---------- ---------- ---------- Total from investment operations ...................... 2.29 (4.98) 0.34 2.26 0.68 ---------- ---------- ---------- ---------- ---------- Less distributions from: Net investment income and short term gains received from Underlying Funds ........................... (0.33) (0.29) (0.36) (0.37) (0.30) Net realized gains ................................. -- (0.28) (0.47) (0.47) (0.25) ---------- ---------- ---------- ---------- ---------- Total distributions ................................... (0.33) (0.57) (0.83) (0.84) (0.55) ---------- ---------- ---------- ---------- ---------- Redemption fees(d) .................................... -- --(e) --(e) --(e) --(e) ---------- ---------- ---------- ---------- ---------- Net asset value, end of year .......................... $ 9.70 $ 7.74 $ 13.29 $ 13.78 $ 12.36 ========== ========== ========== ========== ========== Total return(f) ....................................... 30.11% (38.04)% 2.47% 18.50% 5.63% RATIOS TO AVERAGE NET ASSETS Expenses before waiver and payments by affiliates(g) .. 1.18% 1.21% 1.22% 1.22% 1.20% Expenses net of waiver and payments by affiliates(g) .. 1.11% 1.15% 1.17% 1.15% 1.16% Net investment income(c) .............................. 3.20% 2.60% 2.32% 2.35% 2.36% SUPPLEMENTAL DATA Net assets, end of year (000's) ....................... $2,573,664 $2,491,516 $5,295,157 $3,692,307 $2,075,041 Portfolio turnover rate ............................... 4.32% 4.16% 0.73% 0.96% 0.74%
(a) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (b) Based on average daily shares outstanding. (c) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (d) Effective September 1, 2008, the redemption fee was eliminated. (e) Amount rounds to less than $0.01 per share. (f) Total return does not reflect sales commissions or contingent deferred sales charges, if applicable. (g) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.76% for the year ended December 31, 2009. The accompanying notes are an integral part of these financial statements. 40 | Annual Report Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND
YEAR ENDED DECEMBER 31, -------------------------------------------------- CLASS R 2009 2008 2007 2006 2005 - ------- ------- ------- ------- ------- ------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year .................... $ 7.84 $ 13.50 $ 13.98 $ 12.50 $ 12.28 ------- ------- ------- ------- ------- Income from investment operations(a): Net investment income(b, c) ........................ 0.31 0.35 0.42 0.37 0.33 Net realized and unrealized gains (losses) ......... 2.07 (5.38) (0.01) 1.99 0.42 ------- ------- ------- ------- ------- Total from investment operations ...................... 2.38 (5.03) 0.41 2.36 0.75 ------- ------- ------- ------- ------- Less distributions from: Net investment income and short term gains received from Underlying Funds ........................... (0.38) (0.35) (0.42) (0.41) (0.28) Net realized gains ................................. -- (0.28) (0.47) (0.47) (0.25) ------- ------- ------- ------- ------- Total distributions ................................... (0.38) (0.63) (0.89) (0.88) (0.53) ------- ------- ------- ------- ------- Redemption fees(d) .................................... -- --(e) --(e) --(e) --(e) ------- ------- ------- ------- ------- Net asset value, end of year .......................... $ 9.84 $ 7.84 $ 13.50 $ 13.98 $ 12.50 ======= ======= ======= ======= ======= Total return(f) ....................................... 30.83% (37.77)% 2.92% 19.15% 6.12% RATIOS TO AVERAGE NET ASSETS Expenses before waiver and payments by affiliates(g) .. 0.68% 0.74% 0.72% 0.72% 0.73% Expenses net of waiver and payments by affiliates(g) .. 0.61% 0.68% 0.67% 0.65% 0.69% Net investment income(c) .............................. 3.70% 3.07% 2.82% 2.85% 2.83% SUPPLEMENTAL DATA Net assets, end of year (000's) ....................... $13,331 $14,300 $29,028 $24,435 $17,247 Portfolio turnover rate ............................... 4.32% 4.16% 0.73% 0.96% 0.74%
(a) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (b) Based on average daily shares outstanding. (c) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (d) Effective September 1, 2008, the redemption fee was eliminated. (e) Amount rounds to less than $0.01 per share. (f) Total return does not reflect sales commissions or contingent deferred sales charges, if applicable. (g) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.76% for the year ended December 31, 2009. The accompanying notes are an integral part of these financial statements. Annual Report | 41 Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND
YEAR ENDED DECEMBER 31, -------------------------------------------------- ADVISOR CLASS 2009 2008 2007 2006 2005 - ------------- ------- ------- ------- ------- ------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year .................... $ 7.87 $ 13.58 $ 14.05 $ 12.55 $ 12.32 ------- ------- ------- ------- ------- Income from investment operations(a): Net investment income(b, c) ........................ 0.39 0.47 0.48 0.47 0.39 Net realized and unrealized gains (losses) ......... 2.03 (5.49) 0.01 1.98 0.42 ------- ------- ------- ------- ------- Total from investment operations ...................... 2.42 (5.02) 0.49 2.45 0.81 ------- ------- ------- ------- ------- Less distributions from: Net investment income and short term gains received from Underlying Funds ........................... (0.42) (0.41) (0.49) (0.48) (0.33) Net realized gains ................................. -- (0.28) (0.47) (0.47) (0.25) ------- ------- ------- ------- ------- Total distributions ................................... (0.42) (0.69) (0.96) (0.95) (0.58) ------- ------- ------- ------- ------- Redemption fees(d) .................................... -- --(e) --(e) --(e) --(e) ------- ------- ------- ------- ------- Net asset value, end of year .......................... $ 9.87 $ 7.87 $ 13.58 $ 14.05 $ 12.55 ======= ======= ======= ======= ======= Total return .......................................... 31.35% (37.44)% 3.48% 19.73% 6.63% RATIOS TO AVERAGE NET ASSETS Expenses before waiver and payments by affiliates(f) .. 0.18% 0.24% 0.22% 0.22% 0.23% Expenses net of waiver and payments by affiliates(f) .. 0.11% 0.18% 0.17% 0.15% 0.19% Net investment income(c) .............................. 4.20% 3.57% 3.32% 3.35% 3.33% SUPPLEMENTAL DATA Net assets, end of year (000's) ....................... $63,994 $35,445 $46,866 $25,124 $12,535 Portfolio turnover rate ............................... 4.32% 4.16% 0.73% 0.96% 0.74%
(a) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (b) Based on average daily shares outstanding. (c) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (d) Effective September 1, 2008, the redemption fee was eliminated. (e) Amount rounds to less than $0.01 per share. (f) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.76% for the year ended December 31, 2009. The accompanying notes are an integral part of these financial statements. 42 | Annual Report Franklin Templeton Fund Allocator Series STATEMENT OF INVESTMENTS, DECEMBER 31, 2009
FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND SHARES VALUE ------------------------------------------------- ------------- -------------- INVESTMENTS IN UNDERLYING FUNDS(a) DOMESTIC EQUITY 33.3% Mutual Shares Fund, Class Z ........................................... 144,611,186 $2,775,088,659 -------------- DOMESTIC HYBRID 33.4% Franklin Income Fund, Advisor Class ................................... 1,353,227,646 2,787,648,952 -------------- FOREIGN EQUITY 33.2% Templeton Growth Fund Inc., Advisor Class ............................. 164,906,605 2,770,430,965 -------------- TOTAL INVESTMENTS IN UNDERLYING FUNDS BEFORE SHORT TERM INVESTMENTS (COST $10,146,217,848) 99.9% ....................................... 8,333,168,576 -------------- SHORT TERM INVESTMENTS (COST $34,410,141) 0.4% MONEY MARKET FUNDS 0.4% (b) Institutional Fiduciary Trust Money Market Portfolio, 0.00% ........... 34,410,141 34,410,141 -------------- TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $10,180,627,989) 100.3% ... 8,367,578,717 OTHER ASSETS, LESS LIABILITIES (0.3)% ................................. (27,221,766) -------------- NET ASSETS 100.0% ..................................................... $8,340,356,951 ==============
(a) See Note 6 regarding investments in Underlying Funds. (b) The rate shown is the annualized seven-day yield at period end. The accompanying notes are an integral part of these financial statements. Annual Report | 43 Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION FUND
YEAR ENDED DECEMBER 31, ------------------------------------------------------- CLASS A 2009 2008 2007 2006 2005 - ------- -------- -------- -------- -------- -------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year .................... $ 7.69 $ 13.17 $ 12.90 $ 11.79 $ 11.19 -------- -------- -------- -------- -------- Income from investment operations(a): Net investment income(b, c) ........................ 0.09 0.10 0.15 0.17 0.16 Net realized and unrealized gains (losses) ......... 2.26 (5.20) 0.71 1.55 0.73 -------- -------- -------- -------- -------- Total from investment operations ...................... 2.35 (5.10) 0.86 1.72 0.89 -------- -------- -------- -------- -------- Less distributions from: Net investment income and short term gains received from Underlying Funds ........................... (0.10) (0.12) (0.16) (0.19) (0.13) Net realized gains ................................. -- (0.26) (0.43) (0.42) (0.16) -------- -------- -------- -------- -------- Total distributions ................................... (0.10) (0.38) (0.59) (0.61) (0.29) -------- -------- -------- -------- -------- Redemption fees(d) .................................... -- --(e) --(e) --(e) --(e) -------- -------- -------- -------- -------- Net asset value, end of year .......................... $ 9.94 $ 7.69 $ 13.17 $ 12.90 $ 11.79 ======== ======== ======== ======== ======== Total return(f) ....................................... 30.65% (39.29)% 6.79% 14.69% 7.93% RATIOS TO AVERAGE NET ASSETS Expenses before waiver and payments by affiliates(g) .. 0.56% 0.68% 0.68% 0.72% 0.90% Expenses net of waiver and payments by affiliates(g) .. 0.40% 0.48% 0.50% 0.50% 0.46% Net investment income(c) .............................. 1.08% 0.95% 1.09% 1.18% 1.41% SUPPLEMENTAL DATA Net assets, end of year (000's) ....................... $160,725 $132,432 $228,876 $190,189 $103,348 Portfolio turnover rate ............................... 6.02% 9.37% 2.53% 0.98% 0.68%
(a) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (b) Based on average daily shares outstanding. (c) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (d) Effective September 1, 2008, the redemption fee was eliminated. (e) Amount rounds to less than $0.01 per share. (f) Total return does not reflect sales commissions or contingent deferred sales charges, if applicable. (g) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.83% for the year ended December 31, 2009. The accompanying notes are an integral part of these financial statements. 44 | Annual Report Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION FUND
YEAR ENDED DECEMBER 31, -------------------------------------------------- CLASS C 2009 2008 2007 2006 2005 - ------- ------- ------- ------- ------- ------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year .................... $ 7.66 $ 13.08 $ 12.82 $ 11.74 $ 11.18 ------- ------- ------- ------- ------- Income from investment operations(a): Net investment income(b, c) ........................ 0.03 0.02 0.06 0.08 0.09 Net realized and unrealized gains (losses) ......... 2.24 (5.14) 0.71 1.54 0.72 ------- ------- ------- ------- ------- Total from investment operations ...................... 2.27 (5.12) 0.77 1.62 0.81 ------- ------- ------- ------- ------- Less distributions from: Net investment income and short term gains received from Underlying Funds ........................... (0.04) (0.04) (0.08) (0.12) (0.09) Net realized gains ................................. -- (0.26) (0.43) (0.42) (0.16) ------- ------- ------- ------- ------- Total distributions ................................... (0.04) (0.30) (0.51) (0.54) (0.25) ------- ------- ------- ------- ------- Redemption fees(d) .................................... -- --(e) --(e) --(e) --(e) ------- ------- ------- ------- ------- Net asset value, end of year .......................... $ 9.89 $ 7.66 $ 13.08 $ 12.82 $ 11.74 ======= ======= ======= ======= ======= Total return(f) ....................................... 29.70% (39.75)% 6.11% 13.92% 7.22% RATIOS TO AVERAGE NET ASSETS Expenses before waiver and payments by affiliates(g) .. 1.27% 1.37% 1.34% 1.36% 1.55% Expenses net of waiver and payments by affiliates(g) .. 1.11% 1.17% 1.16% 1.14% 1.11% Net investment income(c) .............................. 0.37% 0.26% 0.43% 0.54% 0.76% SUPPLEMENTAL DATA Net assets, end of year (000's) ....................... $52,314 $46,232 $84,173 $68,482 $36,568 Portfolio turnover rate ............................... 6.02% 9.37% 2.53% 0.98% 0.68%
(a) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (b) Based on average daily shares outstanding. (c) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (d) Effective September 1, 2008, the redemption fee was eliminated. (e) Amount rounds to less than $0.01 per share. (f) Total return does not reflect sales commissions or contingent deferred sales charges, if applicable. (g) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.83% for the year ended December 31, 2009. The accompanying notes are an integral part of these financial statements. Annual Report | 45 Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION FUND
YEAR ENDED DECEMBER 31, --------------------------------------------- CLASS R 2009 2008 2007 2006 2005 - ------- ------ ------- ------ ------ ------ PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year .................... $ 7.70 $ 13.17 $12.90 $11.79 $11.18 ------ ------- ------ ------ ------ Income from investment operations(a): Net investment income(b, c) ........................ 0.06 0.06 0.11 0.14 0.11 Net realized and unrealized gains (losses) ......... 2.27 (5.18) 0.73 1.55 0.77 ------ ------- ------ ------ ------ Total from investment operations ...................... 2.33 (5.12) 0.84 1.69 0.88 ------ ------- ------ ------ ------ Less distributions from: Net investment income and short term gains received from Underlying Funds ........................... (0.08) (0.09) (0.14) (0.16) (0.11) Net realized gains ................................. -- (0.26) (0.43) (0.42) (0.16) ------ ------- ------ ------ ------ Total distributions ................................... (0.08) (0.35) (0.57) (0.58) (0.27) ------ ------- ------ ------ ------ Redemption fees(d) .................................... -- --(e) --(e) --(e) --(e) ------ ------- ------ ------ ------ Net asset value, end of year .......................... $ 9.95 $ 7.70 $13.17 $12.90 $11.79 ====== ======= ====== ====== ====== Total return(f) ....................................... 30.34% (39.44)% 6.58% 14.49% 7.86% RATIOS TO AVERAGE NET ASSETS Expenses before waiver and payments by affiliates(g) .. 0.78% 0.88% 0.85% 0.87% 1.05% Expenses net of waiver and payments by affiliates(g) .. 0.62% 0.68% 0.67% 0.65% 0.61% Net investment income(c) .............................. 0.86% 0.75% 0.92% 1.03% 1.26% SUPPLEMENTAL DATA Net assets, end of year (000's) ....................... $ 702 $ 693 $1,433 $1,539 $1,287 Portfolio turnover rate ............................... 6.02% 9.37% 2.53% 0.98% 0.68%
(a) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (b) Based on average daily shares outstanding. (c) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (d) Effective September 1, 2008, the redemption fee was eliminated. (e) Amount rounds to less than $0.01 per share. (f) Total return does not reflect sales commissions or contingent deferred sales charges, if applicable. (g) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.83% for the year ended December 31, 2009. The accompanying notes are an integral part of these financial statements. 46 | Annual Report Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION FUND
YEAR ENDED DECEMBER 31, ------------------------------------------ ADVISOR CLASS 2009 2008 2007 2006 2005 - ------------- ------ ------ ------ ------ ------ PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year .................. $7.71 $13.22 $12.93 $11.81 $11.19 ------ ------ ------ ------ ------ Income from investment operations(a): Net investment income(b, c) ...................... 0.13 0.19 0.24 0.22 0.11 Net realized and unrealized gains (losses) ....... 2.26 (5.29) 0.68 1.54 0.82 ------ ------ ------ ------ ------ Total from investment operations .................... 2.39 (5.10) 0.92 1.76 0.93 ------ ------ ------ ------ ------ Less distributions from: Net investment income and short term gains received from Underlying Funds ................ (0.13) (0.15) (0.20) (0.22) (0.15) Net realized gains ............................... -- (0.26) (0.43) (0.42) (0.16) ------ ------ ------ ------ ------ Total distributions ................................. (0.13) (0.41) (0.63) (0.64) (0.31) ------ ------ ------ ------ ------ Redemption fees(d) .................................. -- --(e) --(e) --(e) --(e) ------ ------ ------ ------ ------ Net asset value, end of year ........................ $ 9.97 $ 7.71 $13.22 $12.93 $11.81 ====== ====== ====== ====== ====== Total return ........................................ 31.02% (39.10)% 7.26% 15.07% 8.31% RATIOS TO AVERAGE NET ASSETS Expenses before waiver and payments by affiliates(f) .................................... 0.28% 0.38% 0.35% 0.37% 0.55% Expenses net of waiver and payments by affiliates(f) .................................... 0.12% 0.18% 0.17% 0.15% 0.11% Net investment income(c) ............................ 1.36% 1.25% 1.42% 1.53% 1.76% SUPPLEMENTAL DATA Net assets, end of year (000's) ..................... $4,192 $2,480 $2,804 $1,931 $1,104 Portfolio turnover rate ............................. 6.02% 9.37% 2.53% 0.98% 0.68%
(a) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (b) Based on average daily shares outstanding. (c) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (d) Effective September 1, 2008, the redemption fee was eliminated. (e) Amount rounds to less than $0.01 per share. (f) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.83% for the year ended December 31, 2009. The accompanying notes are an integral part of these financial statements. Annual Report | 47 Franklin Templeton Fund Allocator Series STATEMENT OF INVESTMENTS, DECEMBER 31, 2009
FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION FUND SHARES VALUE - ----------------------------------------------- ------------ ------------ INVESTMENTS IN UNDERLYING FUNDS(a) DOMESTIC EQUITY 66.5% (b) Franklin Flex Cap Growth Fund, Advisor Class ............................... 1,722,306 $ 72,302,396 Mutual Shares Fund, Class Z ................................................ 3,785,235 72,638,657 ------------ 144,941,053 ------------ FOREIGN EQUITY 33.1% Templeton Growth Fund Inc., Advisor Class .................................. 4,291,359 72,094,833 ------------ TOTAL INVESTMENTS IN UNDERLYING FUNDS BEFORE SHORT TERM INVESTMENTS (COST $248,148,560) 99.6% ............................................... 217,035,886 ------------ SHORT TERM INVESTMENTS (COST $1,071,505) 0.5% MONEY MARKET FUNDS 0.5% (c) Institutional Fiduciary Trust Money Market Portfolio, 0.00% ................ 1,071,505 1,071,505 ------------ TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $249,220,065) 100.1% ........... 218,107,391 OTHER ASSETS, LESS LIABILITIES (0.1)% ...................................... (174,546) ------------ NET ASSETS 100.0% .......................................................... $217,932,845 ============
(a) See Note 6 regarding investments in Underlying Funds. (b) Non-income producing. (c) The rate shown is the annualized seven-day yield at period end. The accompanying notes are an integral part of these financial statements. 48| Annual Report Franklin Templeton Fund Allocator Series FINANCIAL STATEMENTS STATEMENTS OF ASSETS AND LIABILITIES December 31, 2009
FRANKLIN FRANKLIN FRANKLIN TEMPLETON TEMPLETON TEMPLETON COREFOLIO FOUNDING FUNDS PERSPECTIVES ALLOCATION ALLOCATION ALLOCATION FUND FUND FUND ------------ --------------- ------------ Assets: Investments in Underlying Funds: (Note 6) Cost ............................................................... $486,130,842 $10,180,627,989 $249,220,065 ============ =============== ============ Value .............................................................. $475,999,040 $ 8,367,578,717 $218,107,391 Receivables: Capital shares sold ................................................ 417,937 8,200,109 259,296 Affiliates ......................................................... 130,894 -- 113,093 Underlying Funds (Note 7) .......................................... 90,325 1,213,700 43,380 Other assets .......................................................... 63 1,237 27 ------------ --------------- ------------ Total assets .................................................... 476,638,259 8,376,993,763 218,523,187 ------------ --------------- ------------ Liabilities: Payables: Capital shares redeemed ............................................ 972,568 25,195,669 311,698 Affiliates ......................................................... 446,924 8,407,814 201,413 Unaffiliated transfer agent fees ................................... 70,327 1,354,993 37,542 Accrued expenses and other liabilities ................................ 47,952 1,678,336 39,689 ------------ --------------- ------------ Total liabilities ............................................... 1,537,771 36,636,812 590,342 ------------ --------------- ------------ Net assets, at value ......................................... $475,100,488 $ 8,340,356,951 $217,932,845 ============ =============== ============ Net assets consist of: Paid-in capital ....................................................... $526,575,969 $12,319,941,744 $270,123,760 Undistributed net investment income ................................... 887,724 38,071,489 348,887 Net unrealized appreciation (depreciation) ............................ (10,131,802) (1,813,049,272) (31,112,674) Accumulated net realized gain (loss) .................................. (42,231,403) (2,204,607,010) (21,427,128) ------------ --------------- ------------ Net assets, at value ......................................... $475,100,488 $ 8,340,356,951 $217,932,845 ============ =============== ============
The accompanying notes are an integral part of these financial statements. Annual Report | 49 Franklin Templeton Fund Allocator Series FINANCIAL STATEMENTS (CONTINUED) STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED) December 31, 2009
FRANKLIN FRANKLIN FRANKLIN TEMPLETON TEMPLETON TEMPLETON COREFOLIO FOUNDING FUNDS PERSPECTIVES ALLOCATION ALLOCATION ALLOCATION FUND FUND FUND ------------ -------------- ------------- CLASS A: Net assets, at value .................................................. $319,687,841 $5,333,274,783 $160,725,031 ------------ -------------- ------------ Shares outstanding .................................................... 28,851,278 542,881,146 16,172,461 ------------ -------------- ------------ Net asset value per share(a) .......................................... $ 11.08 $ 9.82 $ 9.94 ------------ -------------- ------------ Maximum offering price per share (net asset value per share / 94.25%) .................................................... $ 11.76 $ 10.42 $ 10.55 ------------ -------------- ------------ CLASS B: Net assets, at value .................................................. $ 39,092,906 $ 356,093,949 ------------ -------------- Shares outstanding .................................................... 3,542,296 36,216,138 ------------ -------------- Net asset value and maximum offering price per share(a) ............... $ 11.04 $ 9.83 ------------ -------------- CLASS C: Net assets, at value .................................................. $113,040,272 $2,573,663,821 $ 52,314,247 ------------ -------------- ------------ Shares outstanding .................................................... 10,284,227 265,405,128 5,287,649 ------------ -------------- ------------ Net asset value and maximum offering price per share(a) ............... $ 10.99 $ 9.70 $ 9.89 ------------ -------------- ------------ CLASS R: Net assets, at value .................................................. $ 1,364,690 $ 13,330,573 $ 701,599 ------------ -------------- ------------ Shares outstanding .................................................... 123,198 1,355,128 70,487 ------------ -------------- ------------ Net asset value and maximum offering price per share .................. $ 11.08 $ 9.84 $ 9.95 ------------ -------------- ------------ ADVISOR CLASS: Net assets, at value .................................................. $ 1,914,779 $ 63,993,825 $ 4,191,968 ------------ -------------- ------------ Shares outstanding .................................................... 172,626 6,481,469 420,578 ------------ -------------- ------------ Net asset value and maximum offering price per share .................. $ 11.09 $ 9.87 $ 9.97 ------------ -------------- ------------
(a) Redemption price is equal to net asset value less contingent deferred sales charges, if applicable. The accompanying notes are an integral part of these financial statements. 50 | Annual Report Franklin Templeton Fund Allocator Series FINANCIAL STATEMENTS (CONTINUED) STATEMENTS OF OPERATIONS for the year ended December 31, 2009
FRANKLIN FRANKLIN FRANKLIN TEMPLETON TEMPLETON TEMPLETON COREFOLIO FOUNDING FUNDS PERSPECTIVES ALLOCATION ALLOCATION ALLOCATION FUND FUND FUND ------------ --------------- ------------- Investment income: Dividends from Underlying Funds (Note 6) .............................. $ 7,021,178 $ 329,079,733 $ 2,851,186 ------------ --------------- ------------ Expenses: Administrative fees (Note 3a) ......................................... 413,938 7,593,473 190,760 Distribution fees: (Note 3b) Class A ............................................................ 754,761 12,903,249 392,293 Class B ............................................................ 345,816 3,282,397 -- Class C ............................................................ 979,209 23,619,243 461,152 Class R ............................................................ 5,906 62,801 3,214 Transfer agent fees (Note 3d) ......................................... 995,906 13,071,469 533,196 Reports to shareholders ............................................... 79,850 1,043,261 46,026 Registration and filing fees .......................................... 76,075 204,723 54,948 Professional fees ..................................................... 23,925 125,792 18,408 Trustees' fees and expenses ........................................... 4,696 88,642 2,139 Other ................................................................. 15,577 215,118 9,593 Expenses borne by Underlying Funds (Note 7) ........................... (608,589) (8,837,256) (315,854) ------------ --------------- ------------ Total expenses .................................................. 3,087,070 53,372,912 1,395,875 Expenses waived/paid by affiliates (Note 3e) .................... (544,832) (4,865,384) (303,853) ------------ --------------- ------------ Net expenses ................................................. 2,542,238 48,507,528 1,092,022 ------------ --------------- ------------ Net investment income ..................................... 4,478,940 280,572,205 1,759,164 ------------ --------------- ------------ Realized and unrealized gains (losses): Net realized gain (loss) from sale of investments in Underlying Funds (29,576,059) (1,108,190,299) (11,670,589) Net change in unrealized appreciation (depreciation) on investments in Underlying Funds ................................................ 141,486,761 2,849,422,623 62,526,844 ------------ --------------- ------------ Net realized and unrealized gain (loss) .................................. 111,910,702 1,741,232,324 50,856,255 ------------ --------------- ------------ Net increase (decrease) in net assets resulting from operations .......... $116,389,642 $ 2,021,804,529 $ 52,615,419 ============ =============== ============
The accompanying notes are an integral part of these financial statements. Annual Report | 51 Franklin Templeton Fund Allocator Series FINANCIAL STATEMENTS (CONTINUED) STATEMENTS OF CHANGES IN NET ASSETS
FRANKLIN TEMPLETON FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND FOUNDING FUNDS ALLOCATION FUND ---------------------------- --------------------------------- YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, ---------------------------- --------------------------------- 2009 2008 2009 2008 ------------ ------------- --------------- --------------- Increase (decrease) in net assets: Operations: Net investment income ..................... $ 4,478,940 $ 4,675,740 $ 280,572,205 $ 377,712,264 Net realized gain (loss) from Underlying Funds ....................... (29,576,059) (10,770,252) (1,108,190,299) (1,044,973,765) Net change in unrealized appreciation (depreciation) on investments in Underlying Funds ....................... 141,486,761 (266,649,939) 2,849,422,623 (4,923,135,686) ------------ ------------- --------------- --------------- Net increase (decrease) in net assets resulting from operations ........ 116,389,642 (272,744,451) 2,021,804,529 (5,590,397,187) ------------ ------------- --------------- --------------- Distributions to shareholders from: Net investment income and short term gains received from Underlying Funds: Class A ................................ (4,102,193) (4,306,007) (219,472,925) (232,663,422) Class B ................................ (256,249) (173,762) (12,350,841) (12,296,371) Class C ................................ (762,501) (555,567) (90,453,684) (91,206,625) Class R ................................ (14,789) (14,468) (512,969) (613,620) Advisor Class .......................... (28,946) (33,624) (2,151,422) (1,808,459) Net realized gains: Class A ................................ -- (9,912,353) -- (206,963,605) Class B ................................ -- (1,420,594) -- (14,528,676) Class C ................................ -- (3,696,588) -- (108,826,242) Class R ................................ -- (51,580) -- (581,731) Advisor Class .......................... -- (65,462) -- (920,311) ------------ ------------- --------------- --------------- Total distributions to shareholders .......... (5,164,678) (20,230,005) (324,941,841) (670,409,062) ------------ ------------- --------------- --------------- Capital share transactions: (Note 2) Class A ................................ (33,456,082) (25,532,551) (772,871,396) (1,199,297,735) Class B ................................ (5,968,895) (10,233,436) (61,904,166) (106,380,153) Class C ................................ (13,057,633) (11,322,678) (438,591,157) (791,796,601) Class R ................................ (142,150) (480,559) (3,667,697) (3,925,755) Advisor Class .......................... (153,841) (443,248) 19,305,430 8,144,816 ------------ ------------- --------------- --------------- Total capital share transactions ............. (52,778,601) (48,012,472) (1,257,728,986) (2,093,255,428) ------------ ------------- --------------- --------------- Redemption fees .............................. -- 1,576 -- 44,669 ------------ ------------- --------------- --------------- Net increase (decrease) in net assets ........................... 58,446,363 (340,985,352) 439,133,702 (8,354,017,008) Net assets: Beginning of year ............................ 416,654,125 757,639,477 7,901,223,249 16,255,240,257 ------------ ------------- --------------- --------------- End of year .................................. $475,100,488 $ 416,654,125 $ 8,340,356,951 $ 7,901,223,249 ============ ============= =============== =============== Undistributed net investment income included in net assets: End of year .................................. $ 887,724 $ 1,573,462 $ 38,071,489 $ 82,441,125 ============ ============= =============== ===============
The accompanying notes are an integral part of these financial statements. 52 | Annual Report Franklin Templeton Fund Allocator Series FINANCIAL STATEMENTS (CONTINUED) STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION FUND ---------------------------- YEAR ENDED DECEMBER 31, ---------------------------- 2009 2008 ------------ ------------- Increase (decrease) in net assets: Operations: Net investment income .................................................... $ 1,759,164 $ 1,994,479 Net realized gain (loss) from Underlying Funds ........................... (11,670,589) (8,917,483) Net change in unrealized appreciation (depreciation) on investments in Underlying Funds ...................................................... 62,526,844 (117,330,528) ------------ ------------- Net increase (decrease) in net assets resulting from operations ....... 52,615,419 (124,253,532) ------------ ------------- Distributions to shareholders from: Net investment income and short term gains received from Underlying Funds: Class A ............................................................... (1,668,418) (2,005,641) Class C ............................................................... (218,058) (220,353) Class R ............................................................... (5,786) (8,254) Advisor Class ......................................................... (51,620) (47,054) Net realized gains: Class A ............................................................... -- (4,521,662) Class C ............................................................... -- (1,694,032) Class R ............................................................... -- (29,595) Advisor Class ......................................................... -- (50,944) ------------ ------------- Total distributions to shareholders ......................................... (1,943,882) (8,577,535) ------------ ------------- Capital share transactions: (Note 2) Class A ............................................................... (9,429,165) (223,905) Class C ............................................................... (5,840,654) (3,260,020) Class R ............................................................... (154,602) (182,809) Advisor Class ......................................................... 849,619 1,046,832 ------------ ------------- Total capital share transactions ............................................ (14,574,802) (2,619,902) ------------ ------------- Redemption fees ............................................................. -- 378 ------------ ------------- Net increase (decrease) in net assets .............................. 36,096,735 (135,450,591) Net assets: Beginning of year ........................................................... 181,836,110 317,286,701 ------------ ------------- End of year ................................................................. $217,932,845 $ 181,836,110 ============ ============= Undistributed net investment income included in net assets: End of year ................................................................. $ 348,887 $ 533,605 ============ =============
The accompanying notes are an integral part of these financial statements. Annual Report | 53 Franklin Templeton Fund Allocator Series NOTES TO FINANCIAL STATEMENTS 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Franklin Templeton Fund Allocator Series (Trust) is registered under the Investment Company Act of 1940, as amended, (1940 Act) as an open-end investment company, consisting of ten separate funds, three of which are included in this report (Funds). The financial statements of the remaining funds in the Trust are presented separately. The Funds invest primarily in Franklin Templeton mutual funds (Underlying Funds). The classes of shares offered within each of the Funds are indicated below. Each class of shares differs by its initial sales load, contingent deferred sales charges, distribution fees, voting rights on matters affecting a single class and its exchange privilege.
CLASS A, CLASS B, CLASS C, CLASS R & ADVISOR CLASS CLASS A, CLASS C, CLASS R & ADVISOR CLASS - -------------------------------------------------- ----------------------------------------------- Franklin Templeton Corefolio Allocation Fund Franklin Templeton Perspectives Allocation Fund Franklin Templeton Founding Funds Allocation Fund
The following summarizes the Funds' significant accounting policies. A. SECURITY VALUATION Net asset value per share is calculated as of the close of trading of the NYSE. Investments in the Underlying Funds are valued at their closing net asset value each trading day. B. INCOME TAXES No provision has been made for U.S. income taxes because it is each fund's policy to qualify as a regulated investment company under the Internal Revenue Code and to distribute to shareholders substantially all of its taxable income and net realized gains. The Funds have reviewed the tax positions, taken on federal income tax returns, for each of the three open tax years and as of December 31, 2009, and have determined that no provision for income tax is required in the Funds' financial statements. C. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS Security transactions are accounted for on trade date. Realized gains and losses on security transactions are determined on a specific identification basis. Estimated expenses are accrued daily. Dividend income and realized gain distributions by Underlying Funds are recorded on the ex-dividend date. Distributions to shareholders are recorded on the ex-dividend date and are determined according to income tax regulations (tax basis). Distributable earnings determined on a tax basis may differ from earnings recorded in accordance with accounting principles generally accepted in the United States of America. These differences may be permanent or temporary. Permanent differences are reclassified among capital accounts to reflect their tax character. These reclassifications have no impact on net assets or the results of operations. Temporary differences are not reclassified, as they may reverse in subsequent periods. 54 | Annual Report Franklin Templeton Fund Allocator Series NOTES TO FINANCIAL STATEMENTS (CONTINUED) 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) C. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS (CONTINUED) Common expenses incurred by the Trust are allocated among the funds based on the ratio of net assets of each fund to the combined net assets of the Trust. Fund specific expenses are charged directly to the fund that incurred the expense. The Funds indirectly bear their proportionate share of expenses from the Underlying Funds. Since the Underlying Funds have varied expense levels and the Funds may own different proportions of the Underlying Funds at different times, the amount of expenses incurred indirectly by the Funds will vary. Realized and unrealized gains and losses and net investment income, not including class specific expenses, are allocated daily to each class of shares based upon the relative proportion of net assets of each class. Differences in per share distributions, by class, are generally due to differences in class specific expenses. D. ACCOUNTING ESTIMATES The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the amounts of income and expenses during the reporting period. Actual results could differ from those estimates. E. REDEMPTION FEES A short term trading redemption fee was imposed, with some exceptions, on any fund shares that were redeemed or exchanged within seven calendar days following their purchase date. The redemption fee was 2% of the amount redeemed. Such fees were retained by the funds and accounted for as an addition to paid-in capital. Effective September 1, 2008, the redemption fee was eliminated. F. GUARANTEES AND INDEMNIFICATIONS Under the Trust's organizational documents, its officers and trustees are indemnified by the Trust against certain liabilities arising out of the performance of their duties to the Trust. Additionally, in the normal course of business, the Trust, on behalf of the Funds, enters into contracts with service providers that contain general indemnification clauses. The Trust's maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Trust that have not yet occurred. Currently, the Trust expects the risk of loss to be remote. Annual Report | 55 Franklin Templeton Fund Allocator Series NOTES TO FINANCIAL STATEMENTS (CONTINUED) 2. SHARES OF BENEFICIAL INTEREST At December 31, 2009, there were an unlimited number of shares authorized (without par value). Transactions in the Funds' shares were as follows:
FRANKLIN TEMPLETON FRANKLIN TEMPLETON COREFOLIO FOUNDING FUNDS ALLOCATION FUND ALLOCATION FUND -------------------------- ------------------------------ SHARES AMOUNT SHARES AMOUNT ---------- ------------- ------------ --------------- CLASS A SHARES: Year ended December 31, 2009 Shares sold .................... 3,236,280 $ 29,331,084 47,169,528 $ 393,990,378 Shares issued in reinvestment of distributions ............... 373,671 3,926,536 23,246,159 207,459,244 Shares redeemed ................ (7,671,732) (66,713,702) (168,105,842) (1,374,321,018) ---------- ------------- ------------ --------------- Net increase (decrease) ........ (4,061,781) $ (33,456,082) (97,690,155) $ (772,871,396) ========== ============= ============ =============== Year ended December 31, 2008 Shares sold .................... 5,567,019 $ 61,833,850 101,658,440 $ 1,166,213,136 Shares issued in reinvestment of distributions ............... 1,265,389 13,537,176 45,436,762 415,107,291 Shares redeemed ................ (8,891,290) (100,903,577) (259,459,671) (2,780,618,162) ---------- ------------- ------------ --------------- Net increase (decrease) ........ (2,058,882) $ (25,532,551) (112,364,469) $(1,199,297,735) ========== ============= ============ =============== CLASS B SHARES: Year ended December 31, 2009 Shares sold .................... 64,424 $ 580,399 467,376 $ 3,922,754 Shares issued in reinvestment of distributions ............... 24,486 240,936 1,293,652 11,520,679 Shares redeemed ................ (768,474) (6,790,230) (9,477,912) (77,347,599) ---------- ------------- ------------ --------------- Net increase (decrease) ........ (679,564) $ (5,968,895) (7,716,884) $ (61,904,166) ========== ============= ============ =============== Year ended December 31, 2008 Shares sold .................... 104,352 $ 1,141,683 986,795 $ 10,589,681 Shares issued in reinvestment of distributions ............... 129,819 1,507,686 2,649,869 24,917,785 Shares redeemed ................ (1,149,669) (12,882,805) (13,417,606) (141,887,619) ---------- ------------- ------------ --------------- Net increase (decrease) ........ (915,498) $ (10,233,436) (9,780,942) $ (106,380,153) ========== ============= ============ =============== CLASS C SHARES: Year ended December 31, 2009 Shares sold .................... 1,160,988 $ 10,404,766 20,266,052 $ 167,747,133 Shares issued in reinvestment of distributions ............... 72,406 714,452 9,122,355 80,143,253 Shares redeemed ................ (2,807,242) (24,176,851) (86,074,684) (686,481,543) ---------- ------------- ------------ --------------- Net increase (decrease) ........ (1,573,848) $ (13,057,633) (56,686,277) $ (438,591,157) ========== ============= ============ =============== Year ended December 31, 2008 Shares sold .................... 2,048,102 $ 22,152,029 45,290,328 $ 503,556,683 Shares issued in reinvestment of distributions ............... 344,964 3,952,057 18,821,585 174,787,157 Shares redeemed ................ (3,459,667) (37,426,764) (140,521,755) (1,470,140,441) ---------- ------------- ------------ --------------- Net increase (decrease) ........ (1,066,601) $ (11,322,678) (76,409,842) $ (791,796,601) ========== ============= ============ ===============
56 | Annual Report Franklin Templeton Fund Allocator Series NOTES TO FINANCIAL STATEMENTS (CONTINUED) 2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
FRANKLIN TEMPLETON FRANKLIN TEMPLETON COREFOLIO FOUNDING FUNDS ALLOCATION FUND ALLOCATION FUND ------------------- ------------------------- SHARES AMOUNT SHARES AMOUNT ------- --------- ---------- ------------ CLASS R SHARES: Year ended December 31, 2009 Shares sold .................... 17,232 $ 165,388 280,523 $ 2,296,033 Shares issued in reinvestment of distributions ............... 1,420 14,789 57,378 512,145 Shares redeemed ................ (35,125) (322,327) (806,790) (6,475,875) ------- --------- ---------- ------------ Net increase (decrease) ........ (16,473) $(142,150) (468,889) $ (3,667,697) ======= ========= ========== ============ Year ended December 31, 2008 Shares sold .................... 16,325 $ 200,227 370,382 $ 4,119,404 Shares issued in reinvestment of distributions ............... 5,950 66,049 129,876 1,191,611 Shares redeemed ................ (65,849) (746,835) (826,353) (9,236,770) ------- --------- ---------- ------------ Net increase (decrease) ........ (43,574) $(480,559) (326,095) $ (3,925,755) ======= ========= ========== ============ ADVISOR CLASS SHARES: Year ended December 31, 2009 Shares sold .................... 66,906 $ 617,402 3,962,200 $ 35,696,840 Shares issued in reinvestment of distributions ............... 2,503 26,558 202,485 1,850,429 Shares redeemed ................ (92,057) (797,801) (2,188,271) (18,241,839) ------- --------- ---------- ------------ Net increase (decrease) ........ (22,648) $(153,841) 1,976,414 $ 19,305,430 ======= ========= ========== ============ Year ended December 31, 2008 Shares sold .................... 45,547 $ 411,512 2,448,980 $ 23,486,926 Shares issued in reinvestment of distributions ............... 8,128 84,684 288,863 2,496,414 Shares redeemed ................ (85,974) (939,444) (1,683,911) (17,838,524) ------- --------- ---------- ------------ Net increase (decrease) ........ (32,299) $(443,248) 1,053,932 $ 8,144,816 ======= ========= ========== ============
FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION FUND ------------------------- SHARES AMOUNT ---------- ------------ CLASS A SHARES: Year ended December 31, 2009 Shares sold ..................................... 2,905,762 $ 23,518,960 Shares issued in reinvestment of distributions .. 171,246 1,625,916 Shares redeemed ................................. (4,128,507) (34,574,041) ---------- ------------ Net increase (decrease) ......................... (1,051,499) $ (9,429,165) ========== ============ Year ended December 31, 2008 Shares sold ..................................... 3,470,298 $ 37,241,720 Shares issued in reinvestment of distributions .. 658,516 6,336,696 Shares redeemed ................................. (4,285,488) (43,802,321) ---------- ------------ Net increase (decrease) ......................... (156,674) $ (223,905) ========== ============
Annual Report | 57 Franklin Templeton Fund Allocator Series NOTES TO FINANCIAL STATEMENTS (CONTINUED) 2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION FUND ------------------------- SHARES AMOUNT ---------- ------------ CLASS C SHARES: Year ended December 31, 2009 Shares sold ...................................... 686,403 $ 5,596,121 Shares issued in reinvestment of distributions ... 23,422 205,339 Shares redeemed .................................. (1,455,466) (11,642,114) ---------- ------------ Net increase (decrease) .......................... (745,641) $ (5,840,654) ========== ============ Year ended December 31, 2008 Shares sold ...................................... 1,394,980 $ 14,721,259 Shares issued in reinvestment of distributions ... 171,980 1,784,729 Shares redeemed .................................. (1,970,998) (19,766,008) ---------- ------------ Net increase (decrease) .......................... (404,038) $ (3,260,020) ========== ============ CLASS R SHARES: Year ended December 31, 2009 Shares sold ...................................... 13,708 $ 108,555 Shares issued in reinvestment of distributions ... 616 5,786 Shares redeemed .................................. (33,851) (268,943) ---------- ------------ Net increase (decrease) .......................... (19,527) $ (154,602) ========== ============ Year ended December 31, 2008 Shares sold ...................................... 15,267 $ 171,827 Shares issued in reinvestment of distributions ... 3,789 37,849 Shares redeemed .................................. (37,884) (392,485) ---------- ------------ Net increase (decrease) .......................... (18,828) $ (182,809) ========== ============ ADVISOR CLASS SHARES: Year ended December 31, 2009 Shares sold ...................................... 312,456 $ 2,800,077 Shares issued in reinvestment of distributions ... 4,975 48,107 Shares redeemed .................................. (218,533) (1,998,565) ---------- ------------ Net increase (decrease) .......................... 98,898 $ 849,619 ========== ============ Year ended December 31, 2008 Shares sold ...................................... 193,937 $ 1,925,016 Shares issued in reinvestment of distributions ... 9,626 86,274 Shares redeemed .................................. (93,976) (964,458) ---------- ------------ Net increase (decrease) .......................... 109,587 $ 1,046,832 ========== ============
3. TRANSACTIONS WITH AFFILIATES Franklin Resources, Inc. is the holding company for various subsidiaries that together are referred to as Franklin Templeton Investments. Certain officers and trustees of the Trust are also officers and/or directors/trustees of certain of the Underlying Funds and of the following subsidiaries:
SUBSIDIARY AFFILIATION - ---------- ---------------------- Franklin Templeton Services, LLC (FT Services) Administrative manager Franklin Templeton Distributors, Inc. (Distributors) Principal underwriter Franklin Templeton Investor Services, LLC (Investor Services) Transfer agent
58 | Annual Report Franklin Templeton Fund Allocator Series NOTES TO FINANCIAL STATEMENTS (CONTINUED) 3. TRANSACTIONS WITH AFFILIATES (CONTINUED) A. ADMINISTRATIVE FEES The Funds pay an administrative fee to FT Services of 0.10% per year of the average daily net assets of each of the Funds for administrative services including monitoring and rebalancing the percentage of each Fund's investment in the Underlying Funds. B. DISTRIBUTION FEES The Trust's Board of Trustees has adopted distribution plans for each share class, with the exception of Advisor Class shares, pursuant to Rule 12b-1 under the 1940 Act. On December 1, 2008, the Trust's Board of Trustees approved a modification to the Class A distribution plan, for those funds that had a Class A compensation plan, changing the form of the plan from a compensation to a reimbursement distribution plan. Under the distribution plan, the Funds reimburse Distributors for costs incurred in connection with the servicing, sale and distribution of each Fund's shares up to the maximum annual plan rate for each class. This change was effective February 1, 2009. Under the Class A reimbursement distribution plans, costs exceeding the maximum for the current plan year cannot be reimbursed in subsequent periods. Prior to February 1, 2009, under the Funds' Class A compensation distribution plan, the Funds paid Distributors for costs incurred in connection with the servicing, sale and distribution of the Funds' shares up to a certain percentage per year of its average daily net assets. In addition, under the Funds' compensation distribution plans, the Funds pay Distributors for costs incurred in connection with the servicing, sale and distribution of each fund's shares up to the maximum annual plan rate for each class. The maximum annual plan rates, based on the average daily net assets, for each class, are as follows:
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON COREFOLIO FOUNDING FUNDS PERSPECTIVES ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND ------------------ ------------------ ------------------ Class A... 0.35% 0.35% 0.35% Class B... 1.00% 1.00% -- Class C... 1.00% 1.00% 1.00% Class R... 0.50% 0.50% 0.50%
The Board of Trustees has set the current rate at 0.30% per year for Class A shares for the Franklin Templeton Corefolio Allocation Fund and the Franklin Templeton Perspectives Allocation Fund, and at 0.25% per year for Class A shares of the Franklin Templeton Founding Funds Allocation Fund until further notice and approval by the Board. Annual Report | 59 Franklin Templeton Fund Allocator Series NOTES TO FINANCIAL STATEMENTS (CONTINUED) 3. TRANSACTIONS WITH AFFILIATES (CONTINUED) C. SALES CHARGES/UNDERWRITING AGREEMENTS Distributors has advised the Funds of the following commission transactions related to the sales and redemptions of the Funds' shares for the year:
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON COREFOLIO FOUNDING FUNDS PERSPECTIVES ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND ------------------ ------------------ ------------------ Sales charges retained net of commissions paid to unaffiliated broker/dealers ....... $155,178 $1,876,925 $104,239 Contingent deferred sales charges retained ... $ 18,333 $ 341,241 $ 5,112
D. TRANSFER AGENT FEES For the year ended December 31, 2009, the Funds paid transfer agent fees as noted in the Statements of Operations of which the following amounts were retained by Investor Services:
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON COREFOLIO FOUNDING FUNDS PERSPECTIVES ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND ------------------ ------------------ ------------------ Transfer agent fees .......................... $728,458 $7,972,032 $400,719
E. WAIVER AND EXPENSE REIMBURSEMENTS FT Services has contractually agreed in advance to waive or limit its fees and to assume as its own expense certain expenses otherwise payable by the Funds so that the common expenses (i.e. a combination of administrative fees and other expenses, but excluding distribution fees and acquired fund fees and expenses) for each class of the Funds do not exceed 0.10% (other than certain non-routine expenses or costs, including those relating to litigation, indemnification, reorganizations, and liquidations) until April 30, 2010. Prior to May 1, 2009, the common expenses and acquired fund fees and expenses were limited to 0.90%, 0.85% and 0.92% for the Franklin Templeton Corefolio Allocation Fund, Franklin Templeton Founding Funds Allocation Fund and Franklin Templeton Perspectives Allocation Fund, respectively. 4. INCOME TAXES For tax purposes, capital losses may be carried over to offset future capital gains, if any. At December 31, 2009, the capital loss carryforwards were as follows:
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON COREFOLIO FOUNDING FUNDS PERSPECTIVES ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND ------------------ ------------------ ------------------ Capital loss carryforwards expiring in: 2016 ...................................... $ 6,021,473 $ 666,677,037 $ 2,696,618 2017 ...................................... 29,756,579 1,134,008,344 7,870,700 ----------- -------------- ----------- $35,778,052 $1,800,685,381 $10,567,318 =========== ============== ===========
60 | Annual Report Franklin Templeton Fund Allocator Series NOTES TO FINANCIAL STATEMENTS (CONTINUED) 4. INCOME TAXES (CONTINUED) For tax purposes, realized capital losses occurring subsequent to October 31, may be deferred and treated as occurring on the first day of the following fiscal year. At December 31, 2009, deferred realized capital losses were as follows:
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON COREFOLIO FOUNDING FUNDS PERSPECTIVES ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND ------------------ ------------------ ------------------ Realized capital losses ..................... $242,331 $88,404,374 $1,572,645
The tax character of distributions paid during the years ended December 31, 2009 and 2008, was as follows:
FRANKLIN TEMPLETON FRANKLIN TEMPLETON COREFOLIO FOUNDING FUNDS ALLOCATION FUND ALLOCATION FUND ------------------------ --------------------------- 2009 2008 2009 2008 ---------- ----------- ------------ ------------ Distributions paid from: Ordinary income ........................... $5,164,678 $ 5,083,428 $324,941,841 $338,588,497 Long term capital gain .................... -- 15,146,577 -- 331,820,565 ---------- ----------- ------------ ------------ $5,164,678 $20,230,005 $324,941,841 $670,409,062 ========== =========== ============ ============
FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION FUND ----------------------- 2009 2008 ---------- ---------- Distributions paid from: Ordinary income ........................... $1,943,882 $2,286,145 Long term capital gain .................... -- 6,291,390 ---------- ---------- $1,943,882 $8,577,535 ========== ==========
At December 31, 2009, the cost of investments, net unrealized appreciation (depreciation), and undistributed ordinary income for income tax purposes were as follows:
FRANKLIN FRANKLIN FRANKLIN TEMPLETON TEMPLETON TEMPLETON COREFOLIO FOUNDING FUNDS PERSPECTIVES ALLOCATION ALLOCATION ALLOCATION FUND FUND FUND ------------ ---------------- ------------ Cost of investments .......................... $492,341,862 $ 10,496,145,243 $258,507,230 ============ ================ ============ Unrealized appreciation ...................... $ 31,002,585 $ -- $ 6,377,482 Unrealized depreciation ...................... 47,345,407) (2,128,566,526) (46,777,321) ------------ ---------------- ------------ Net unrealized appreciation (depreciation).... $(16,342,822) $(2,128,566,526) $(40,399,839) ============ ================ ============ Distributable earnings - undistributed ordinary income ............. $ 887,724 $ 38,071,489 $ 348,887 ============ ================ ============
Net realized gains (losses) differ for financial statement and tax purposes primarily due to differing treatment of wash sales and short term capital gains distributions from Underlying Funds. Annual Report | 61 Franklin Templeton Fund Allocator Series NOTES TO FINANCIAL STATEMENTS (CONTINUED) 5. INVESTMENT TRANSACTIONS Purchases and sales of Underlying Funds (excluding short term securities) for the year ended December 31, 2009, were as follows:
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON COREFOLIO FOUNDING FUNDS PERSPECTIVES ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND ------------------ ------------------ ------------------ Purchases ......... $ 8,320,681 $ 329,053,295 $11,450,316 Sales ............. $61,300,658 $1,663,254,424 $25,392,646
6. INVESTMENTS IN UNDERLYING FUNDS The Funds invest primarily in the Underlying Funds which are managed by Franklin Advisers, Inc. (Advisers), an affiliate of FT Services, or by an affiliate of Advisers. The Funds do not invest in the Underlying Funds for the purpose of exercising management or control. At December 31, 2009, the Funds held the following positions which exceed 5% of the Underlying Funds' shares outstanding:
NAME OF ISSUER % OF SHARES HELD - -------------- ---------------- FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND Franklin Growth Fund ................................... 7.26% FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND Mutual Shares Fund ..................................... 17.93% Templeton Growth Fund Inc. ............................. 14.52% Franklin Income Fund ................................... 5.55%
The Funds may invest in the Institutional Fiduciary Trust Money Market Portfolio (Sweep Money Fund), an open-end investment company managed by Advisers. Pursuant to a SEC exemptive order specific to the Funds' investment in the Sweep Money Fund, administrative fees are reduced on assets invested in the Sweep Money Fund, in an amount not to exceed the management and administrative fees paid by the Sweep Money Fund. 7. SPECIAL SERVICING AGREEMENT On May 1, 2009, the Funds entered into a Special Servicing Agreement (SSA) with the Underlying Funds and certain service providers of the Funds and of the Underlying Funds. Under the SSA, each Underlying Fund may pay a portion of the Funds' expenses (other than any asset allocation, administrative, and distribution fees) to the extent such payments are less than the amount of the benefits realized or expected to be realized by the Underlying Fund (e.g., due to reduced costs associated with servicing accounts) from the investment in the Underlying Funds by the Funds. The amount of expenses allocated during the year ended December 31, 2009 is noted in the Statements of Operations. 62| Annual Report Franklin Templeton Fund Allocator Series NOTES TO FINANCIAL STATEMENTS (CONTINUED) 8. CREDIT FACILITY The Funds, together with other U.S. registered and foreign investment funds (collectively "Borrowers"), managed by Franklin Templeton Investments, are borrowers in a joint syndicated senior unsecured credit facility totaling $725 million (Global Credit Facility) to provide a source of funds to the Borrowers for temporary and emergency purposes, including the ability to meet future unanticipated or unusually large redemption requests. Effective January 22, 2010, the funds renewed the Global Credit Facility, for a total of $750 million, maturing January 21, 2011. Under the terms of the Global Credit Facility, the Funds shall, in addition to interest charged on any borrowings made by the Funds and other costs incurred by the Funds, pay its share of fees and expenses incurred in connection with the implementation and maintenance of the Global Credit Facility, based upon its relative share of the aggregate net assets of all of the Borrowers, including an annual commitment fee of 0.10% based upon the unused portion of the Global Credit Facility, which is reflected in other expenses on the Statements of Operations. During the year ended December 31, 2009, the Funds did not utilize the Global Credit Facility. 9. FAIR VALUE MEASUREMENTS The Trust follows a fair value hierarchy that distinguishes between market data obtained from independent sources (observable inputs) and the Trust's own market assumptions (unobservable inputs). These inputs are used in determining the value of the Funds' investments and are summarized in the following fair value hierarchy: - Level 1 - quoted prices in active markets for identical securities - Level 2 - other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speed, credit risk, etc.) - Level 3 - significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments) The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities. At December 31, 2009, all of the Funds' investments in Underlying Funds carried at fair value were in Level 1 inputs. For detailed Underlying Funds categories, see the accompanying Statements of Investments. Annual Report | 63 Franklin Templeton Fund Allocator Series NOTES TO FINANCIAL STATEMENTS (CONTINUED) 10. NEW ACCOUNTING PRONOUNCEMENTS In January 2010, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) No. 2010-6, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. ASU No. 2010-6 enhances and clarifies existing fair value measurement disclosure requirements and is effective for interim and annual periods beginning after December 15, 2009. The Trust is currently evaluating the impact, if any, of applying the provisions of ASU No. 2010-6. 11. SUBSEQUENT EVENTS The Funds have evaluated subsequent events through February 15, 2010, the issuance date of the financial statements and determined that no events have occurred that require disclosure. 64 | Annual Report Franklin Templeton Fund Allocator Series REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF FRANKLIN TEMPLETON FUND ALLOCATOR SERIES In our opinion, the accompanying statements of assets and liabilities, including the statements of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Franklin Templeton Corefolio Allocation Fund, Franklin Templeton Founding Funds Allocation Fund and Franklin Templeton Perspectives Allocation Fund (separate portfolios of Franklin Templeton Fund Allocator Series, hereafter referred to as the "Funds") at December 31, 2009, the results of each of their operations for the year then ended, the changes in each of their net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of investments in the Underlying Funds at December 31, 2009 by correspondence with the Transfer Agent of Underlying Funds, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP San Francisco, California February 15, 2010 Annual Report | 65 Franklin Templeton Fund Allocator Series TAX DESIGNATION (UNAUDITED) Under Section 854(b)(2) of the Internal Revenue Code (Code), the Funds designate the following percentage amounts of the ordinary income dividends as income qualifying for the dividends received deduction for the fiscal year ended December 31, 2009:
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON COREFOLIO FOUNDING FUNDS PERSPECTIVES ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND - ------------------ ------------------ ------------------ 76.79% 22.60% 50.07%
Under Section 854(b)(2) of the Code, the Funds designate the maximum amount allowable but no less than the following amounts as qualified dividends for purposes of the maximum rate under Section 1(h)(11) of the Code for the fiscal year ended December 31, 2009:
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON COREFOLIO FOUNDING FUNDS PERSPECTIVES ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND - ------------------ ------------------ ------------------ $7,020,681 $146,609,931 $2,850,316
Distributions, including qualified dividend income, paid during calendar year 2009 will be reported to shareholders on Form 1099-DIV in January 2010. Shareholders are advised to check with their tax advisors for information on the treatment of these amounts on their individual income tax returns. 66 | Annual Report Franklin Templeton Fund Allocator Series BOARD MEMBERS AND OFFICERS The name, year of birth and address of the officers and board members, as well as their affiliations, positions held with the Trust, principal occupations during the past five years and number of portfolios overseen in the Franklin Templeton Investments fund complex are shown below. Generally, each board member serves until that person's successor is elected and qualified. INDEPENDENT BOARD MEMBERS
NUMBER OF PORTFOLIOS IN NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD - ----------------------------- --------------- ------------------ ----------------------- ------------------------------------- HARRIS J. ASHTON (1932) Trustee Since 1995 133 Bar-S Foods (meat packing company). One Franklin Parkway San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Director of various companies; and FORMERLY, Director, RBC Holdings, Inc. (bank holding company) (until 2002); and President, Chief Executive Officer and Chairman of the Board, General Host Corporation (nursery and craft centers) (until 1998). ROBERT F. CARLSON (1928) Trustee Since 2005 110 None One Franklin Parkway San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Retired; and FORMERLY, Vice President, senior member and President, Board of Administration, California Public Employees Retirement Systems (CALPERS) (1971-2008); member and Chairman of the Board, Sutter Community Hospitals; member, Corporate Board, Blue Shield of California; and Chief Counsel, California Department of Transportation. SAM GINN (1937) Trustee Since 2007 110 ICO Global Communications (Holdings) One Franklin Parkway Limited (satellite company). San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Private investor; and FORMERLY, Chairman of the Board, Vodafone AirTouch, PLC (wireless company); Chairman of the Board and Chief Executive Officer, AirTouch Communications (cellular communications) (1993-1998) and Pacific Telesis Groups (telephone holding company) (1988-1994). EDITH E. HOLIDAY (1952) Trustee Since 1998 133 Hess Corporation (exploration and One Franklin Parkway refining of oil and gas), H.J. Heinz San Mateo, CA 94403-1906 Company (processed foods and allied products), RTI International Metals, Inc. (manufacture and distribution of titanium), Canadian National Railway (railroad) and White Mountains Insurance Group, Ltd. (holding company). PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Director or Trustee of various companies and trusts; and FORMERLY, Assistant to the President of the United States and Secretary of the Cabinet (1990-1993); General Counsel to the United States Treasury Department (1989-1990); and Counselor to the Secretary and Assistant Secretary for Public Affairs and Public Liaison - United States Treasury Department (1988-1989).
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NUMBER OF PORTFOLIOS IN NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD - ----------------------------- --------------- ------------------ ----------------------- ------------------------------------- FRANK W.T. LAHAYE (1929) Trustee Since 1995 109 None One Franklin Parkway San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: General Partner, Las Olas L.P. (Asset Management); and FORMERLY, Chairman, Peregrine Venture Management Company (venture capital). J. MICHAEL LUTTIG (1954) Trustee Since December 133 Boeing Capital Corporation (aircraft One Franklin Parkway 2009 financing). San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Executive Vice President, General Counsel and member of Executive Council, The Boeing Company; and FORMERLY, Federal Appeals Court Judge, U.S. Court of Appeals for the Fourth Circuit (1991-2006). FRANK A. OLSON (1932) Trustee Since 2007 133 Hess Corporation (exploration and One Franklin Parkway refining of oil and gas). San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Chairman Emeritus, The Hertz Corporation (car rental) (since 2000) (Chairman of the Board (1980-2000) and Chief Executive Officer (1977-1999)); and FORMERLY, Chairman of the Board, President and Chief Executive Officer, UAL Corporation (airlines). LARRY D. THOMPSON (1945) Trustee Since 2007 141 None One Franklin Parkway San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Senior Vice President - Government Affairs, General Counsel and Secretary, PepsiCo, Inc. (consumer products); and FORMERLY, Director, Delta Airlines (aviation) (2003-2005) and Providian Financial Corp. (credit card provider) (1997-2001); Senior Fellow of The Brookings Institution (2003-2004); Visiting Professor, University of Georgia School of Law (2004); and Deputy Attorney General, U.S. Department of Justice (2001-2003). JOHN B. WILSON (1959) Lead Trustee since 110 None One Franklin Parkway Independent 2006 and Lead San Mateo, CA 94403-1906 Trustee Independent Trustee since 2008 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: President and Founder, Hyannis Port Capital, Inc. (real estate and private equity investing); serves on private and non-profit boards; and FORMERLY, Chief Operating Officer and Executive Vice President, Gap, Inc. (retail) (1996-2000); Chief Financial Officer and Executive Vice President - Finance and Strategy, Staples, Inc. (office supplies) (1992-1996); Senior Vice President - Corporate Planning, Northwest Airlines, Inc. (airlines) (1990-1992); and Vice President and Partner, Bain & Company (consulting firm) (1986-1990).
68 | Annual Report INTERESTED BOARD MEMBERS AND OFFICERS
NUMBER OF PORTFOLIOS IN NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD - ----------------------------- --------------- ------------------ ----------------------- ------------------------------------- **CHARLES B. JOHNSON (1933) Trustee and Since 1995 133 None One Franklin Parkway Chairman of San Mateo, CA 94403-1906 the Board PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Chairman of the Board, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Director, Templeton Worldwide, Inc.; and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 41 of the investment companies in Franklin Templeton Investments. **GREGORY E. JOHNSON (1961) Trustee Since 2007 89 None One Franklin Parkway San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Director, President and Chief Executive Officer, Franklin Resources, Inc.; President, Templeton Worldwide, Inc.; and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 32 of the investment companies in Franklin Templeton Investments. JAMES M. DAVIS (1952) Chief Chief Compliance Not Applicable Not Applicable One Franklin Parkway Compliance Officer since 2004 San Mateo, CA 94403-1906 Officer and and Vice Vice President President - AML - AML Compliance since Compliance 2006 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Director, Global Compliance, Franklin Resources, Inc.; officer of some of the other subsidiaries of Franklin Resources, Inc. and of 45 of the investment companies in Franklin Templeton Investments; and FORMERLY, Director of Compliance, Franklin Resources, Inc. (1994-2001). LAURA F. FERGERSON (1962) Chief Since March 2009 Not Applicable Not Applicable One Franklin Parkway Executive San Mateo, CA 94403-1906 Officer - Finance and Administration PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Senior Vice President, Franklin Templeton Services, LLC; officer of 45 of the investment companies in Franklin Templeton Investments; and FORMERLY, Director and member of Audit and Valuation Committees, Runkel Funds, Inc. (2003-2004); Assistant Treasurer of most of the investment companies in Franklin Templeton Investments (1997-2003); and Vice President, Franklin Templeton Services, LLC (1997-2003). GASTON GARDEY (1967) Treasurer, Since March 2009 Not Applicable Not Applicable One Franklin Parkway Chief Financial San Mateo, CA 94403-1906 Officer and Chief Accounting Officer PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Director, Fund Accounting, Franklin Templeton Investments; and officer of 27 of the investment companies in Franklin Templeton Investments.
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NUMBER OF PORTFOLIOS IN NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD - ----------------------------- --------------- ------------------ ----------------------- ------------------------------------- ALIYA S. GORDON (1973) Vice President Since March 2009 Not Applicable Not Applicable One Franklin Parkway San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Associate General Counsel, Franklin Templeton Investments; officer of 45 of the investment companies in Franklin Templeton Investments; and FORMERLY, Litigation Associate, Steefel, Levitt & Weiss, LLP (2000-2004). - ---------------------------------------------------------------------------------------------------------------------------------- DAVID P. GOSS (1947) Vice President Since 2000 Not Applicable Not Applicable One Franklin Parkway San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Senior Associate General Counsel, Franklin Templeton Investments; officer and/or director, as the case maybe, of some of the other subsidiaries of Franklin Resources, Inc. and of 45 of the investment companies in Franklin Templeton Investments. - ---------------------------------------------------------------------------------------------------------------------------------- STEVEN J. GRAY (1955) Vice President Since August Not Applicable Not Applicable One Franklin Parkway 2009 San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Senior Associate General Counsel, Franklin Templeton Investments; Vice President, Franklin Templeton Distributors, Inc.; and officer of 45 of the investment companies in Franklin Templeton Investments. - ---------------------------------------------------------------------------------------------------------------------------------- RUPERT H. JOHNSON, JR. (1940) President and President and Not Applicable Not Applicable One Franklin Parkway Chief Chief Executive San Mateo, CA 94403-1906 Executive Officer - Officer - Investment Investment Management Management since 2002 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Director, Franklin Advisers, Inc. and Templeton Worldwide, Inc.; Senior Vice President, Franklin Advisory Services, LLC; and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 43 of the investment companies in Franklin Templeton Investments. - ---------------------------------------------------------------------------------------------------------------------------------- ROBERT C. ROSSELOT (1960) Vice President Since August Not Applicable Not Applicable 500 East Broward Blvd. 2009 Suite 2100 Fort Lauderdale, FL 33394-3091 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Senior Associate General Counsel, Franklin Templeton Investments; Assistant Secretary, Franklin Resources, Inc.; Vice President and Secretary, Templeton Investment Counsel, LLC; Vice President, Secretary and Trust Officer, Fiduciary Trust International of the South; and officer of 45 of the investment companies in Franklin Templeton Investments. - ---------------------------------------------------------------------------------------------------------------------------------- KAREN L. SKIDMORE (1952) Vice President Since 2006 Not Applicable Not Applicable One Franklin Parkway and Secretary San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Senior Associate General Counsel, Franklin Templeton Investments; and officer of 45 of the investment companies in Franklin Templeton Investments.
70 | Annual Report
NUMBER OF PORTFOLIOS IN NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD - ----------------------------- --------------- ------------------ ----------------------- ------------------------------------- CRAIG S. TYLE (1960) Vice President Since 2005 Not Applicable Not Applicable One Franklin Parkway San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: General Counsel and Executive Vice President, Franklin Resources, Inc.; officer of some of the other subsidiaries of Franklin Resources, Inc. and of 45 of the investment companies in Franklin Templeton Investments; and FORMERLY, Partner, Shearman & Sterling, LLP (2004-2005); and General Counsel, Investment Company Institute (ICI) (1997-2004).
* We base the number of portfolios on each separate series of the U.S. registered investment companies within the Franklin Templeton Investments fund complex. These portfolios have a common investment manager or affiliated investment managers. ** Charles B. Johnson is considered to be an interested person of the Fund under the federal securities laws due to his position as officer and director and major shareholder of Franklin Resources, Inc. (Resources), which is the parent company of the Fund's investment manager and distributor. Gregory E. Johnson is considered to be an interested person of the Fund under the federal securities laws due to his position as an officer and director of Resources. Note 1: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers and the father and uncle, respectively, of Gregory E. Johnson. Note 2: Officer information is current as of the date of this report. It is possible that after this date, information about officers may change. THE SARBANES-OXLEY ACT OF 2002 AND RULES ADOPTED BY THE SECURITIES AND EXCHANGE COMMISSION REQUIRE THE FUND TO DISCLOSE WHETHER THE FUND'S AUDIT COMMITTEE INCLUDES AT LEAST ONE MEMBER WHO IS AN AUDIT COMMITTEE FINANCIAL EXPERT WITHIN THE MEANING OF SUCH ACT AND RULES. THE FUND'S BOARD HAS DETERMINED THAT THERE IS AT LEAST ONE SUCH FINANCIAL EXPERT ON THE AUDIT COMMITTEE AND HAS DESIGNATED JOHN B. WILSON AS ITS AUDIT COMMITTEE FINANCIAL EXPERT. THE BOARD BELIEVES THAT MR. WILSON QUALIFIES AS SUCH AN EXPERT IN VIEW OF HIS EXTENSIVE BUSINESS BACKGROUND AND EXPERIENCE, INCLUDING SERVICE AS CHIEF FINANCIAL OFFICER OF STAPLES, INC. FROM 1992 TO 1996. MR. WILSON HAS BEEN A MEMBER AND CHAIRMAN OF THE FUND'S AUDIT COMMITTEE SINCE 2006. AS A RESULT OF SUCH BACKGROUND AND EXPERIENCE, THE BOARD BELIEVES THAT MR. WILSON HAS ACQUIRED AN UNDERSTANDING OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND FINANCIAL STATEMENTS, THE GENERAL APPLICATION OF SUCH PRINCIPLES IN CONNECTION WITH THE ACCOUNTING ESTIMATES, ACCRUALS AND RESERVES, AND ANALYZING AND EVALUATING FINANCIAL STATEMENTS THAT PRESENT A BREADTH AND LEVEL OF COMPLEXITY OF ACCOUNTING ISSUES GENERALLY COMPARABLE TO THOSE OF THE FUND, AS WELL AS AN UNDERSTANDING OF INTERNAL CONTROLS AND PROCEDURES FOR FINANCIAL REPORTING AND AN UNDERSTANDING OF AUDIT COMMITTEE FUNCTIONS. MR. WILSON IS AN INDEPENDENT BOARD MEMBER AS THAT TERM IS DEFINED UNDER THE RELEVANT SECURITIES AND EXCHANGE COMMISSION RULES AND RELEASES. THE STATEMENT OF ADDITIONAL INFORMATION (SAI) INCLUDES ADDITIONAL INFORMATION ABOUT THE BOARD MEMBERS AND IS AVAILABLE, WITHOUT CHARGE, UPON REQUEST. SHAREHOLDERS MAY CALL (800) DIAL BEN/(800) 342-5236 TO REQUEST THE SAI. Annual Report | 71 Franklin Templeton Fund Allocator Series SHAREHOLDER INFORMATION PROXY VOTING POLICIES AND PROCEDURES The Trust's investment manager has established Proxy Voting Policies and Procedures (Policies) that the Trust uses to determine how to vote proxies relating to portfolio securities. Shareholders may view the Trust's complete Policies online at franklintempleton.com. Alternatively, shareholders may request copies of the Policies free of charge by calling the Proxy Group collect at (954) 527-7678 or by sending a written request to: Franklin Templeton Companies, LLC, 500 East Broward Boulevard, Suite 1500, Fort Lauderdale, FL 33394, Attention: Proxy Group. Copies of the Trust's proxy voting records are also made available online at franklintempleton.com and posted on the U.S. Securities and Exchange Commission's website at sec.gov and reflect the most recent 12-month period ended June 30. QUARTERLY STATEMENT OF INVESTMENTS The Trust files a complete statement of investments with the U.S. Securities and Exchange Commission for the first and third quarters for each fiscal year on Form N-Q. Shareholders may view the filed Form N-Q by visiting the Commission's website at sec.gov. The filed form may also be viewed and copied at the Commission's Public Reference Room in Washington, DC. Information regarding the operations of the Public Reference Room may be obtained by calling (800) SEC-0330. 72 | Annual Report Franklin Templeton Funds LITERATURE REQUEST. TO RECEIVE A PROSPECTUS, PLEASE CALL US AT (800) DIAL BEN/(800) 342-5236 OR VISIT franklintempleton.com. INVESTORS SHOULD CAREFULLY CONSIDER A FUND'S INVESTMENT GOALS, RISKS, CHARGES AND EXPENSES BEFORE INVESTING. THE PROSPECTUS CONTAINS THIS AND OTHER INFORMATION. PLEASE CAREFULLY READ THE PROSPECTUS BEFORE INVESTING. TO ENSURE THE HIGHEST QUALITY OF SERVICE, WE MAY MONITOR, RECORD AND ACCESS TELEPHONE CALLS TO OR FROM OUR SERVICE DEPARTMENTS. THESE CALLS CAN BE IDENTIFIED BY THE PRESENCE OF A REGULAR BEEPING TONE. VALUE Franklin All Cap Value Fund Franklin Balance Sheet Investment Fund Franklin Large Cap Value Fund Franklin MicroCap Value Fund(1) Franklin MidCap Value Fund Franklin Small Cap Value Fund Mutual Beacon Fund Mutual Quest Fund(2) Mutual Recovery Fund(3) Mutual Shares Fund BLEND Franklin Focused Core Equity Fund Franklin Large Cap Equity Fund Franklin Rising Dividends Fund GROWTH Franklin DynaTech Fund Franklin Flex Cap Growth Fund Franklin Growth Fund Franklin Growth Opportunities Fund Franklin Small Cap Growth Fund Franklin Small-Mid Cap Growth Fund SECTOR Franklin Biotechnology Discovery Fund Franklin Global Real Estate Fund Franklin Gold & Precious Metals Fund Franklin Natural Resources Fund Franklin Real Estate Securities Fund Franklin Utilities Fund Mutual Financial Services Fund GLOBAL Mutual Global Discovery Fund(4) Templeton Global Long-Short Fund Templeton Global Opportunities Trust Templeton Global Smaller Companies Fund Templeton Growth Fund Templeton World Fund INTERNATIONAL Franklin India Growth Fund Franklin International Growth Fund Franklin International Small Cap Growth Fund Mutual European Fund Mutual International Fund Templeton BRIC Fund Templeton China World Fund Templeton Developing Markets Trust Templeton Emerging Markets Small Cap Fund Templeton Foreign Fund Templeton Foreign Smaller Companies Fund Templeton Frontier Markets Fund HYBRID Franklin Balanced Fund Franklin Convertible Securities Fund Franklin Equity Income Fund Franklin Income Fund Templeton Income Fund ASSET ALLOCATION Franklin Templeton Corefolio(R) Allocation Fund Franklin Templeton Founding Funds Allocation Fund Franklin Templeton Perspectives Allocation Fund Franklin Templeton Conservative Target Fund Franklin Templeton Growth Target Fund Franklin Templeton Moderate Target Fund Franklin Templeton 2015 Retirement Target Fund Franklin Templeton 2025 Retirement Target Fund Franklin Templeton 2035 Retirement Target Fund Franklin Templeton 2045 Retirement Target Fund FIXED INCOME Franklin Adjustable U.S. Government Securities Fund(5) Franklin Floating Rate Daily Access Fund Franklin High Income Fund Franklin Limited Maturity U.S. Government Securities Fund(5) Franklin Low Duration Total Return Fund Franklin Real Return Fund Franklin Strategic Income Fund Franklin Strategic Mortgage Portfolio Franklin Templeton Hard Currency Fund Franklin Total Return Fund Franklin U.S. Government Securities Fund(5) Templeton Global Bond Fund Templeton Global Total Return Fund Templeton International Bond Fund TAX-FREE INCOME(6) NATIONAL Double Tax-Free Income Fund Federal Tax-Free Income Fund High Yield Tax-Free Income Fund Insured Tax-Free Income Fund(7) LIMITED-/INTERMEDIATE-TERM California Intermediate-Term Tax-Free Income Fund Federal Intermediate-Term Tax-Free Income Fund Federal Limited-Term Tax-Free Income Fund New York Intermediate-Term Tax-Free Income Fund STATE-SPECIFIC Alabama Arizona California(8) Colorado Connecticut Florida Georgia Kentucky Louisiana Maryland Massachusetts(9) Michigan(9) Minnesota(9) Missouri New Jersey New York(8) North Carolina Ohio(9) Oregon Pennsylvania Tennessee Virginia INSURANCE FUNDS Franklin Templeton Variable Insurance Products Trust(10) (1.) The fund is closed to new investors. Existing shareholders and select retirement plans can continue adding to their accounts. (2.) Effective 5/1/09, Mutual Qualified Fund changed its name to Mutual Quest Fund. The fund's investment goal and strategy remained unchanged. (3.) The fund is a continuously offered, closed-end fund. Shares may be purchased daily; there is no daily redemption. However, each quarter, pending board approval, the fund will authorize the repurchase of 5%-25% of the outstanding number of shares. Investors may tender all or a portion of their shares during the tender period. (4.) Effective 5/1/09, Mutual Discovery Fund changed its name to Mutual Global Discovery Fund. The fund's investment goal and strategy remained unchanged. (5.) An investment in the fund is neither insured nor guaranteed by the U.S. government or by any other entity or institution. (6.) For investors subject to the alternative minimum tax, a small portion of fund dividends may be taxable. Distributions of capital gains are generally taxable. (7.) The fund invests primarily in insured municipal securities. (8.) These funds are available in three or more variations, including long-term portfolios, intermediate-term portfolios, portfolios of insured securities, a high-yield portfolio (CA only) and a money market portfolio (CA only). (9.) The Board of Trustees approved the elimination of the non-fundamental policy requiring the fund to invest at least 80% of net assets in insured municipal securities and the removal of the word "Insured" from the fund name. The changes became effective 2/15/09. (10.) The funds of the Franklin Templeton Variable Insurance Products Trust are generally available only through insurance company variable contracts. 01/10 Not part of the annual report (FRANKLIN TEMPLETON INVESTMENTS (R) LOGO) One Franklin Parkway San Mateo, CA 94403-1906 SIGN UP FOR ELECTRONIC DELIVERY on franklintempleton.com ANNUAL REPORT AND SHAREHOLDER LETTER FRANKLIN TEMPLETON FUND ALLOCATOR SERIES INVESTMENT MANAGER Franklin Advisers, Inc. DISTRIBUTOR Franklin Templeton Distributors, Inc. (800) DIAL BEN(R) franklintempleton.com SHAREHOLDER SERVICES (800) 632-2301 Authorized for distribution only when accompanied or preceded by a prospectus. Investors should carefully consider a fund's investment goals, risks, charges and expenses before investing. The prospectus contains this and other information; please read it carefully before investing. To ensure the highest quality of service, telephone calls to or from our service departments may be monitored, recorded and accessed. These calls can be identified by the presence of a regular beeping tone. FAS2 A2009 02/10 DECEMBER 31, 2009 ANNUAL REPORT AND SHAREHOLDER LETTER Franklin Templeton 2015 Retirement Target Fund Franklin Templeton 2025 Retirement Target Fund Franklin Templeton 2035 Retirement Target Fund Franklin Templeton 2045 Retirement Target Fund SIGN UP FOR ELECTRONIC DELIVERY on franklintempleton.com (GRAPHIC) ASSET ALLOCATION FRANKLIN TEMPLETON FUND ALLOCATOR SERIES (GRAPHIC) (FRANKLIN TEMPLETON INVESTMENTS(R) LOGO) FRANKLIN - TEMPLETON - MUTUAL SERIES FRANKLIN TEMPLETON INVESTMENTS GAIN FROM OUR PERSPECTIVE(R) Franklin Templeton's distinct multi-manager structure combines the specialized expertise of three world-class investment management groups-- Franklin, Templeton and Mutual Series. SPECIALIZED EXPERTISE Each of our portfolio management groups operates autonomously, relying on its own research and staying true to the unique investment disciplines that underlie its success. FRANKLIN. Founded in 1947, Franklin is a recognized leader in fixed income investing and also brings expertise in growth- and value-style U.S. equity investing. TEMPLETON. Founded in 1940, Templeton pioneered international investing and, in 1954, launched what has become the industry's oldest global fund. Today, with offices in over 25 countries, Templeton offers investors a truly global perspective. MUTUAL SERIES. Founded in 1949, Mutual Series is dedicated to a unique style of value investing, searching aggressively for opportunity among what it believes are undervalued stocks, as well as arbitrage situations and distressed securities. TRUE DIVERSIFICATION Because our management groups work independently and adhere to different investment approaches, Franklin, Templeton and Mutual Series funds typically have distinct portfolios. That's why our funds can be used to build truly diversified allocation plans covering every major asset class. RELIABILITY YOU CAN TRUST At Franklin Templeton Investments, we seek to consistently provide investors with exceptional risk-adjusted returns over the long term, as well as the reliable, accurate and personal service that has helped us become one of the most trusted names in financial services. MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS (GRAPHIC) Not part of the annual report Contents SHAREHOLDER LETTER ........................................................ 1 ANNUAL REPORT Economic and Market Overview .............................................. 3 Franklin Templeton 2015 Retirement Target Fund ............................ 5 Franklin Templeton 2025 Retirement Target Fund ............................ 15 Franklin Templeton 2035 Retirement Target Fund ............................ 25 Franklin Templeton 2045 Retirement Target Fund ............................ 35 Financial Highlights and Statements of Investments ........................ 45 Financial Statements ...................................................... 65 Notes to Financial Statements ............................................. 70 Report of Independent Registered Public Accounting Firm ................... 81 Tax Designation ........................................................... 82 Board Members and Officers ................................................ 83 Shareholder Information ................................................... 88
Shareholder Letter Dear Shareholder: During the year 2009, U.S. economic activity showed signs of stabilization after a prolonged recession. Government stimulus measures helped thaw credit markets, the financial system avoided collapse, and many companies reported better-than-expected earnings after cutting costs. Investors breathed a collective sigh of relief, and equity markets enjoyed a remarkable rally while interest rates remained low and inflation was subdued. Franklin Templeton Fund Allocator Series' annual report goes into greater detail about prevailing conditions during the period under review. In addition, you will find performance data, financial information and discussions from the portfolio manager. Please remember that all securities markets fluctuate, as do mutual fund share prices. If you would like more frequent updates, franklintempleton.com provides daily prices, monthly performance figures, portfolio holdings and other information. You can also access your account, buy and sell shares, and find helpful financial planning tools. We hope you will take advantage of these online services. Although market conditions are constantly changing, we remain committed to our disciplined strategy as we manage the Fund, keeping in mind the trust you have placed in us. As always, we recommend investors consult their financial advisors and review their portfolios to design a long-term strategy and portfolio allocation that meet their individual needs, goals and risk tolerance. We firmly believe that most people benefit from professional advice, and that advice is invaluable as investors navigate current market conditions. NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE Not part of the annual report | 1 We thank you for investing with Franklin Templeton, welcome your questions and comments, and look forward to serving your investment needs in the years ahead. Sincerely, /s/ Charles B. Johnson Charles B. Johnson Chairman Franklin Templeton Fund Allocator Series THIS LETTER REFLECTS OUR ANALYSIS AND OPINIONS AS OF DECEMBER 31, 2009. THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY, INDUSTRY, SECURITY OR FUND. STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED RELIABLE. 2 | Not part of the annual report Annual Report Economic and Market Overview The U.S. economy ended 2009 in much better shape than it began. After several quarters of contraction, economic activity expanded in the third and fourth quarters. In the year's second half, corporate profit growth was higher than earlier estimates, which may allow businesses to build inventory following a long period of inventory drawdowns. Economic challenges remain, such as stalled consumer confidence and job prospects for the unemployed, as stimulus measures wind down, but several reports pointed to improving economic conditions. Throughout the year, the Federal Open Market Committee kept U.S. monetary policy unchanged, announcing it intends to hold the federal funds target rate in the 0% to 0.25% range "for an extended period" as it lays the groundwork for an eventual tightening of monetary policy. Late in the period, the labor market improved somewhat as the economy lost fewer jobs than expected and the unemployment rate fell slightly, dropping from a period high of 10.2% in October to 10.0% at period-end.(1) Globally, equity markets entered 2009 largely pricing in a possible economic depression and systemic solvency crisis, scenarios that were ultimately averted by one of the most aggressive global policy responses in financial history. As government monetary and fiscal intervention began to gain traction toward the end of the first quarter, equities bottomed and largely reversed their decline, economic growth stabilized and rebounded, and confidence was rekindled as investors began to believe the global financial system was finally on the mend. Emerging market economies fueled the global recovery as governments aggressively incentivized lending and consumption, resulting in a dramatic recovery that laid the groundwork for the developing world's equity rally. Growing demand from emerging markets supported commodity prices, which also posted record gains during the year. For most of the year, the fading U.S. dollar also helped underpin the rally in hard assets, while continued euro and yen strength created headwinds for regional recoveries. (1.) Source: Bureau of Labor Statistics. Annual Report | 3 For the 12 months under review, the blue chip stocks of the Dow Jones Industrial Average delivered a total return of +22.68%, while the broader Standard & Poor's 500 Index (S&P 500) posted a +26.46% total return and the technology-heavy NASDAQ Composite Index returned +45.32%.(2) Global developed and emerging markets, as measured by the Morgan Stanley Capital International (MSCI) All Country World Index, delivered a +35.41% total return.(3) THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS AND OPINIONS AS OF DECEMBER 31, 2009. THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY, INDUSTRY, SECURITY OR FUND. STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED RELIABLE. (2.) Source: (C) 2009 Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results. The Dow Jones Industrial Average is price weighted based on the average market price of 30 blue chip stocks of companies that are generally industry leaders. The S&P 500 consists of 500 stocks chosen for market size, liquidity and industry group representation. Each stock's weight in the index is proportionate to its market value. The S&P 500 is one of the most widely used benchmarks of U.S. equity performance. The NASDAQ Composite Index measures all NASDAQ domestic and international common type stocks listed on The NASDAQ Stock Market. (3.) Source: (C) 2009 Morningstar. The MSCI All Country World Index is a free float-adjusted, market capitalization-weighted index designed to measure equity market performance in global developed and emerging markets. 4 | Annual Report Franklin Templeton 2015 Retirement Target Fund YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Templeton 2015 Retirement Target Fund seeks the highest level of long-term total return, which consists of capital appreciation and income, consistent with the Fund's asset allocation. The Fund allocates among the broad asset classes of equity, fixed income and short-term (money market) investments by investing in a distinctly weighted combination of Franklin Templeton mutual funds (underlying funds), with an increasing emphasis on income as the target date of 2015 approaches. ASSET ALLOCATION* Franklin Templeton 2015 Retirement Target Fund Based on Total Net Assets as of 12/31/09 (PIE CHART) Domestic Equity............................ 45.6% Foreign Equity............................. 20.8% Domestic Fixed Income...................... 15.5% Foreign Fixed Income....................... 9.6% Short-Term Investments & Other Net Assets.. 8.5%
* The asset allocation is based on the Statement of Investments (SOI), which classifies each underlying fund into a broad asset class. This annual report for Franklin Templeton 2015 Retirement Target Fund covers the fiscal year ended December 31, 2009. PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM FIGURES SHOWN. PLEASE VISIT franklintempleton.com OR CALL (800) 342-5236 FOR MOST RECENT MONTH-END PERFORMANCE. PERFORMANCE OVERVIEW Franklin Templeton 2015 Retirement Target Fund - Class A delivered a +28.50% cumulative total return for the 12 months ended December 31, 2009. By comparison the Fund's benchmarks, the Standard & Poor's 500 Index (S&P 500) and Morgan Stanley Capital International (MSCI) Europe, Australasia, Far East (EAFE) Index for equities, the Barclays Capital (BC) U.S. Aggregate Index for THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S SOI, WHICH BEGINS ON PAGE 49. Annual Report | 5 fixed income, and the Payden & Rygel (P&R) 90 Day U.S. T-Bill Index for short-term investments and other net assets, posted total returns of +26.46%, +32.46%, +5.93% and +0.17%, respectively, during the same time.(1) You can find other performance data in the Performance Summary beginning on page 8. TOP 10 FUND HOLDINGS Franklin Templeton 2015 Retirement Target Fund 12/31/09
% OF TOTAL NET ASSETS ---------- Franklin Flex Cap Growth Fund - Advisor Class 16.8% Mutual Shares Fund - Class Z 11.1% Franklin U.S. Government Securities Fund - Advisor Class 8.7% Templeton Global Bond Fund - Advisor Class 8.5% Mutual European Fund - Class Z 7.3% Franklin Total Return Fund - Advisor Class 6.8% Franklin Growth Opportunities Fund - Advisor Class 6.7% Templeton Foreign Fund - Advisor Class 6.4% Franklin Gold and Precious Metals Fund - Advisor Class 3.6% Templeton China World Fund - Advisor Class 3.5%
INVESTMENT STRATEGY When selecting equity funds, we consider the underlying funds' foreign and domestic exposure, market capitalization ranges, and investment style (growth vs. value). When selecting fixed income funds, our primary focus is on maximizing income appropriate to the Fund's risk profile. In evaluating the risk level of the underlying funds, we analyze such factors as: (a) relative and absolute performance, including correlations with other underlying funds as well as corresponding benchmarks, and (b) their volatility (the variability of returns from one period to the next). We attempt to invest the assets of each Target Fund in the same underlying funds and will vary the underlying funds' allocation percentages based upon each Fund's risk/return level. We change the Fund's target asset allocation gradually over time, and it becomes increasingly conservative as the stated target date draws near. MANAGER'S DISCUSSION The Fund's performance can be attributed largely to its allocation among equities, fixed income securities, and short-term investments and other net assets, and to the actual performance of the selected underlying funds. This allocation shifts every year, in accordance with the retirement date associated with the portfolio. (1.) Source: (C) 2009 Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. The S&P 500 consists of 500 stocks chosen for market size, liquidity and industry group representation. Each stock's weight in the index is proportionate to its market value. The S&P 500 is one of the most widely used benchmarks of U.S. equity performance. The MSCI EAFE Index is a free float-adjusted, market capitalization-weighted index designed to measure equity market performance in global developed markets excluding the U.S. and Canada. The BC U.S. Aggregate Index is a market capitalization-weighted index representing the U.S. investment-grade, fixed-rate, taxable bond market with index components for government and corporate, mortgage pass-through and asset-backed securities. All issues included are SEC registered, taxable, dollar denominated and nonconvertible, must have at least one year to final maturity and must be rated investment grade (Baa3/BBB-/BBB- or higher) by Moody's, Standard & Poor's or Fitch, respectively. The P&R 90 Day U.S. T-Bill Index is a total return index based on a constant maturity instrument. Payden & Rygel includes both accrued interest and change in market price in its monthly total return calculations. The value of Treasuries, if held to maturity, is fixed; principal is guaranteed and interest is fixed. The indexes are unmanaged and include reinvestment of any income or distributions. One cannot invest directly in an index, and an index is not representative of the Fund's portfolio. 6 | Annual Report At period-end, Franklin Templeton 2015 Retirement Target Fund's domestic equity exposure was 68.7% of its total equity weighting, and foreign equity made up the balance. The portfolio was diversified across capitalization sizes and investment styles, and on December 31, 2009, we held shares in large-, mid- and small-capitalization equity funds, representing both growth and value styles. Franklin Flex Cap Growth Fund - Advisor Class, at 16.8% of the Fund's total net assets, was our largest equity fund weighting at period-end. On the fixed income side, domestic exposure was 61.8% of the Fund's total fixed income weighting, with the balance in foreign fixed income. Franklin U.S. Government Securities Fund - Advisor Class was our largest fixed income fund weighting at 8.7% of total net assets. Our largest domestic growth fund holding, Franklin Flex Cap Growth Fund - Advisor Class, and our largest domestic value fund holding, Mutual Shares Fund - Class Z, outperformed the S&P 500. Our largest foreign equity holding, Mutual European Fund - Class Z, trailed the MSCI EAFE Index; however, Templeton Foreign Fund - Advisor Class outperformed. On the fixed income side, Templeton Global Bond Fund - Advisor Class outperformed the BC U.S. Aggregate Index, while Franklin U.S. Government Securities Fund - Advisor Class underperformed. Thank you for your continued participation in Franklin Templeton 2015 Retirement Target Fund. We look forward to serving your future investment needs. (PHOTO OF T. ANTHONY COFFEY) /s/ T. Anthony Coffey T. Anthony Coffey, CFA Portfolio Manager Franklin Templeton 2015 Retirement Target Fund THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2009, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT OUR MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY. THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY, INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED RELIABLE, BUT THE INVESTMENT MANAGER MAKES NO REPRESENTATION OR WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR INVESTMENT MANAGEMENT PHILOSOPHY. Annual Report | 7 Performance Summary as of 12/31/09 FRANKLIN TEMPLETON 2015 RETIREMENT TARGET FUND Your dividend income will vary depending on dividends or interest paid by securities in the Fund's portfolio, adjusted for operating expenses of each class. Capital gain distributions are net profits realized from the sale of portfolio securities. The performance table and graphs do not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares. Total return reflects reinvestment of the Fund's dividends and capital gain distributions, if any, and any unrealized gains or losses. PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: FTRAX) CHANGE 12/31/09 12/31/08 - ----------------------- ------ -------- -------- Net Asset Value (NAV) +$2.03 $10.17 $8.14 DISTRIBUTIONS (1/1/09-12/31/09) Dividend Income $0.2049 Long-Term Capital Gain $0.0528 TOTAL $0.2577
CLASS C (SYMBOL: N/A) CHANGE 12/31/09 12/31/08 - --------------------- ------ -------- -------- Net Asset Value (NAV) +$2.02 $10.10 $8.08 DISTRIBUTIONS (1/1/09-12/31/09) Dividend Income $0.1455 Long-Term Capital Gain $0.0528 TOTAL $0.1983
CLASS R (SYMBOL: N/A) CHANGE 12/31/09 12/31/08 - --------------------- ------ -------- -------- Net Asset Value (NAV) +$2.03 $10.15 $8.12 DISTRIBUTIONS (1/1/09-12/31/09) Dividend Income $0.1873 Long-Term Capital Gain $0.0528 TOTAL $0.2401
ADVISOR CLASS (SYMBOL: N/A) CHANGE 12/31/09 12/31/08 - --------------------------- ------ -------- -------- Net Asset Value (NAV) +$2.04 $10.19 $8.15 DISTRIBUTIONS (1/1/09-12/31/09) Dividend Income $0.2307 Long-Term Capital Gain $0.0528 TOTAL $0.2835
8 | Annual Report Performance Summary (CONTINUED) PERFORMANCE(1) CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURN AND VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 5.75% MAXIMUM INITIAL SALES CHARGE; CLASS C: 1% CONTINGENT DEFERRED SALES CHARGE IN FIRST YEAR ONLY; CLASS R/ADVISOR CLASS: NO SALES CHARGES.
CLASS A 1-YEAR 3-YEAR INCEPTION (8/1/06) - ------- ------- ------- ------------------ Cumulative Total Return(2) +28.50% +5.07% +14.10% Average Annual Total Return(3) +21.06% -0.32% +2.15% Value of $10,000 Investment(4) $12,106 $ 9,905 $10,754 Total Annual Operating Expenses(5) Without Waiver 2.14% With Waiver 1.21%
CLASS C 1-YEAR 3-YEAR INCEPTION (8/1/06) - ------- ------- ------- ------------------ Cumulative Total Return(2) +27.75% +2.93% +11.48% Average Annual Total Return(3) +26.75% +0.97% +3.23% Value of $10,000 Investment(4) $12,675 $10,293 $11,148 Total Annual Operating Expenses(5) Without Waiver 2.84% With Waiver 1.91%
CLASS R 1-YEAR 3-YEAR INCEPTION (8/1/06) - ------- ------- ------- ------------------ Cumulative Total Return(2) +28.32% +4.48% +13.34% Average Annual Total Return(3) +28.32% +1.47% +3.73% Value of $10,000 Investment(4) $12,832 $10,448 $11,334 Total Annual Operating Expenses(5) Without Waiver 2.34% With Waiver 1.41%
ADVISOR CLASS 1-YEAR 3-YEAR INCEPTION (8/1/06) - ------------- ------- ------- ------------------ Cumulative Total Return(2) +28.94% +6.03% +15.31% Average Annual Total Return(3) +28.94% +1.97% +4.26% Value of $10,000 Investment(4) $12,894 $10,603 $11,531 Total Annual Operating Expenses(5) Without Waiver 1.84% With Waiver 0.91%
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM FIGURES SHOWN. FOR MOST RECENT MONTH-END PERFORMANCE, GO TO franklintempleton.com OR CALL (800) 342-5236. THE INVESTMENT MANAGER HAS CONTRACTUALLY AGREED TO WAIVE OR LIMIT ITS FEES AND TO ASSUME AS ITS OWN EXPENSE CERTAIN EXPENSES OTHERWISE PAYABLE BY THE FUND SO THAT COMMON EXPENSES (I.E., A COMBINATION OF ASSET ALLOCATION FEES AND OTHER EXPENSES, BUT EXCLUDING RULE 12B-1 FEES AND ACQUIRED FUND FEES AND EXPENSES) FOR EACH CLASS OF THE FUND DO NOT EXCEED 0.15% (OTHER THAN CERTAIN NONROUTINE EXPENSES OR COSTS, INCLUDING THOSE RELATING TO LITIGATION, INDEMNIFICATION, REORGANIZATIONS AND LIQUIDATIONS) UNTIL 4/30/10. Annual Report | 9 Performance Summary (CONTINUED) TOTAL RETURN INDEX COMPARISON FOR A HYPOTHETICAL $10,000 INVESTMENT(1) Total return represents the change in value of an investment over the periods shown. It includes any applicable maximum sales charge, Fund expenses, account fees and reinvested distributions. The unmanaged indexes include reinvestment of any income or distributions. They differ from the Fund in composition and do not pay management fees or expenses. One cannot invest directly in an index. AVERAGE ANNUAL TOTAL RETURN
CLASS A 12/31/09 - ------- -------- 1-Year +21.06% 3-Year -0.32% Since Inception (8/1/06) +2.15%
CLASS A (8/1/06-12/31/09) (PERFORMANCE GRAPH)
FRANKLIN TEMPLETON 2015 RETIREMENT BARCLAYS CAPITAL U.S. PAYDEN & RYGEL 90-DAY DATE TARGET FUND - CLASS A S&P 500 INDEX MSCI EAFE INDEX AGGREGATE BOND INDEX U.S. TREASURY INDEX - ---------- --------------------- ------------- --------------- --------------------- --------------------- 8/1/2006 $ 9,425 $10,000 $10,000 $10,000 $10,000 8/31/2006 $ 9,576 $10,238 $10,278 $10,153 $10,044 9/30/2006 $ 9,604 $10,502 $10,296 $10,242 $10,088 10/31/2006 $ 9,887 $10,844 $10,697 $10,310 $10,127 11/30/2006 $10,160 $11,050 $11,020 $10,430 $10,170 12/31/2006 $10,235 $11,205 $11,366 $10,369 $10,214 1/31/2007 $10,378 $11,375 $11,444 $10,365 $10,256 2/28/2007 $10,369 $11,152 $11,538 $10,525 $10,296 3/31/2007 $10,514 $11,277 $11,838 $10,525 $10,343 4/30/2007 $10,801 $11,776 $12,374 $10,582 $10,387 5/31/2007 $11,060 $12,187 $12,608 $10,502 $10,434 6/30/2007 $11,020 $11,985 $12,627 $10,471 $10,473 7/31/2007 $10,845 $11,613 $12,442 $10,558 $10,513 8/31/2007 $10,893 $11,787 $12,251 $10,687 $10,573 9/30/2007 $11,363 $12,228 $12,909 $10,768 $10,611 10/31/2007 $11,733 $12,423 $13,417 $10,865 $10,644 11/30/2007 $11,295 $11,903 $12,980 $11,060 $10,692 12/31/2007 $11,241 $11,821 $12,688 $11,091 $10,716 1/31/2008 $10,657 $11,112 $11,517 $11,278 $10,771 2/29/2008 $10,647 $10,751 $11,686 $11,293 $10,790 3/31/2008 $10,495 $10,704 $11,569 $11,332 $10,815 4/30/2008 $10,872 $11,226 $12,211 $11,308 $10,826 5/31/2008 $11,080 $11,371 $12,354 $11,225 $10,832 6/30/2008 $10,497 $10,412 $11,346 $11,216 $10,848 7/31/2008 $10,366 $10,325 $10,982 $11,207 $10,869 8/31/2008 $10,396 $10,474 $10,540 $11,314 $10,884 9/30/2008 $ 9,621 $ 9,541 $ 9,020 $11,162 $10,914 10/31/2008 $ 8,413 $ 7,939 $ 7,200 $10,898 $10,931 11/30/2008 $ 8,098 $ 7,369 $ 6,814 $11,253 $10,943 12/31/2008 $ 8,369 $ 7,447 $ 7,225 $11,673 $10,941 1/31/2009 $ 8,081 $ 6,820 $ 6,517 $11,570 $10,940 2/28/2009 $ 7,659 $ 6,094 $ 5,851 $11,526 $10,941 3/31/2009 $ 8,128 $ 6,627 $ 6,224 $11,686 $10,945 4/30/2009 $ 8,750 $ 7,262 $ 7,031 $11,742 $10,948 5/31/2009 $ 9,195 $ 7,668 $ 7,876 $11,827 $10,949 6/30/2009 $ 9,185 $ 7,683 $ 7,833 $11,895 $10,950 7/31/2009 $ 9,727 $ 8,264 $ 8,549 $12,087 $10,952 8/31/2009 $ 9,894 $ 8,562 $ 9,015 $12,212 $10,954 9/30/2009 $10,344 $ 8,882 $ 9,362 $12,340 $10,955 10/31/2009 $10,207 $ 8,717 $ 9,246 $12,401 $10,958 11/30/2009 $10,511 $ 9,240 $ 9,433 $12,561 $10,959 12/31/2009 $10,754 $ 9,418 $ 9,570 $12,365 $10,959
AVERAGE ANNUAL TOTAL RETURN
CLASS C 12/31/09 - ------- -------- 1-Year +26.75% 3-Year +0.97% Since Inception (8/1/06) +3.23%
CLASS C (8/1/06-12/31/09) (PERFORMANCE GRAPH)
FRANKLIN TEMPLETON 2015 RETIREMENT BARCLAYS CAPITAL U.S. PAYDEN & RYGEL 90-DAY DATE TARGET FUND - CLASS C S&P 500 INDEX MSCI EAFE INDEX AGGREGATE BOND INDEX U.S. TREASURY INDEX - ---------- --------------------- ------------- --------------- --------------------- --------------------- 8/1/2006 $10,000 $10,000 $10,000 $10,000 $10,000 8/31/2006 $10,150 $10,238 $10,278 $10,153 $10,044 9/30/2006 $10,180 $10,502 $10,296 $10,242 $10,088 10/31/2006 $10,480 $10,844 $10,697 $10,310 $10,127 11/30/2006 $10,760 $11,050 $11,020 $10,430 $10,170 12/31/2006 $10,830 $11,205 $11,366 $10,369 $10,214 1/31/2007 $10,972 $11,375 $11,444 $10,365 $10,256 2/28/2007 $10,952 $11,152 $11,538 $10,525 $10,296 3/31/2007 $11,096 $11,277 $11,838 $10,525 $10,343 4/30/2007 $11,401 $11,776 $12,374 $10,582 $10,387 5/31/2007 $11,665 $12,187 $12,608 $10,502 $10,434 6/30/2007 $11,613 $11,985 $12,627 $10,471 $10,473 7/31/2007 $11,427 $11,613 $12,442 $10,558 $10,513 8/31/2007 $11,469 $11,787 $12,251 $10,687 $10,573 9/30/2007 $11,961 $12,228 $12,909 $10,768 $10,611 10/31/2007 $12,332 $12,423 $13,417 $10,865 $10,644 11/30/2007 $11,868 $11,903 $12,980 $11,060 $10,692 12/31/2007 $11,807 $11,821 $12,688 $11,091 $10,716 1/31/2008 $11,190 $11,112 $11,517 $11,278 $10,771 2/29/2008 $11,169 $10,751 $11,686 $11,293 $10,790 3/31/2008 $11,003 $10,704 $11,569 $11,332 $10,815 4/30/2008 $11,401 $11,226 $12,211 $11,308 $10,826 5/31/2008 $11,611 $11,371 $12,354 $11,225 $10,832 6/30/2008 $10,993 $10,412 $11,346 $11,216 $10,848 7/31/2008 $10,843 $10,325 $10,982 $11,207 $10,869 8/31/2008 $10,865 $10,474 $10,540 $11,314 $10,884 9/30/2008 $10,057 $ 9,541 $ 9,020 $11,162 $10,914 10/31/2008 $ 8,787 $ 7,939 $ 7,200 $10,898 $10,931 11/30/2008 $ 8,445 $ 7,369 $ 6,814 $11,253 $10,943 12/31/2008 $ 8,726 $ 7,447 $ 7,225 $11,673 $10,941 1/31/2009 $ 8,424 $ 6,820 $ 6,517 $11,570 $10,940 2/28/2009 $ 7,981 $ 6,094 $ 5,851 $11,526 $10,941 3/31/2009 $ 8,469 $ 6,627 $ 6,224 $11,686 $10,945 4/30/2009 $ 9,110 $ 7,262 $ 7,031 $11,742 $10,948 5/31/2009 $ 9,566 $ 7,668 $ 7,876 $11,827 $10,949 6/30/2009 $ 9,550 $ 7,683 $ 7,833 $11,895 $10,950 7/31/2009 $10,107 $ 8,264 $ 8,549 $12,087 $10,952 8/31/2009 $10,271 $ 8,562 $ 9,015 $12,212 $10,954 9/30/2009 $10,736 $ 8,882 $ 9,362 $12,340 $10,955 10/31/2009 $10,593 $ 8,717 $ 9,246 $12,401 $10,958 11/30/2009 $10,901 $ 9,240 $ 9,433 $12,561 $10,959 12/31/2009 $11,148 $ 9,418 $ 9,570 $12,365 $10,959
10 | Annual Report Performance Summary (CONTINUED) AVERAGE ANNUAL TOTAL RETURN
CLASS R 12/31/09 - ------- -------- 1-Year +28.32% 3-Year +1.47% Since Inception (8/1/06) +3.73%
CLASS R (8/1/06-12/31/09) (PERFORMANCE GRAPH)
FRANKLIN TEMPLETON 2015 RETIREMENT BARCLAYS CAPITAL U.S. PAYDEN & RYGEL 90-DAY DATE TARGET FUND - CLASS R S&P 500 INDEX MSCI EAFE INDEX AGGREGATE BOND INDEX U.S. TREASURY INDEX - ---------- --------------------- ------------- --------------- --------------------- --------------------- 8/1/2006 $10,000 $10,000 $10,000 $10,000 $10,000 8/31/2006 $10,160 $10,238 $10,278 $10,153 $10,044 9/30/2006 $10,190 $10,502 $10,296 $10,242 $10,088 10/31/2006 $10,490 $10,844 $10,697 $10,310 $10,127 11/30/2006 $10,770 $11,050 $11,020 $10,430 $10,170 12/31/2006 $10,848 $11,205 $11,366 $10,369 $10,214 1/31/2007 $11,001 $11,375 $11,444 $10,365 $10,256 2/28/2007 $10,990 $11,152 $11,538 $10,525 $10,296 3/31/2007 $11,145 $11,277 $11,838 $10,525 $10,343 4/30/2007 $11,449 $11,776 $12,374 $10,582 $10,387 5/31/2007 $11,714 $12,187 $12,608 $10,502 $10,434 6/30/2007 $11,678 $11,985 $12,627 $10,471 $10,473 7/31/2007 $11,493 $11,613 $12,442 $10,558 $10,513 8/31/2007 $11,534 $11,787 $12,251 $10,687 $10,573 9/30/2007 $12,030 $12,228 $12,909 $10,768 $10,611 10/31/2007 $12,413 $12,423 $13,417 $10,865 $10,644 11/30/2007 $11,948 $11,903 $12,980 $11,060 $10,692 12/31/2007 $11,888 $11,821 $12,688 $11,091 $10,716 1/31/2008 $11,279 $11,112 $11,517 $11,278 $10,771 2/29/2008 $11,258 $10,751 $11,686 $11,293 $10,790 3/31/2008 $11,093 $10,704 $11,569 $11,332 $10,815 4/30/2008 $11,503 $11,226 $12,211 $11,308 $10,826 5/31/2008 $11,714 $11,371 $12,354 $11,225 $10,832 6/30/2008 $11,098 $10,412 $11,346 $11,216 $10,848 7/31/2008 $10,958 $10,325 $10,982 $11,207 $10,869 8/31/2008 $10,980 $10,474 $10,540 $11,314 $10,884 9/30/2008 $10,163 $ 9,541 $ 9,020 $11,162 $10,914 10/31/2008 $ 8,884 $ 7,939 $ 7,200 $10,898 $10,931 11/30/2008 $ 8,551 $ 7,369 $ 6,814 $11,253 $10,943 12/31/2008 $ 8,833 $ 7,447 $ 7,225 $11,673 $10,941 1/31/2009 $ 8,528 $ 6,820 $ 6,517 $11,570 $10,940 2/28/2009 $ 8,082 $ 6,094 $ 5,851 $11,526 $10,941 3/31/2009 $ 8,574 $ 6,627 $ 6,224 $11,686 $10,945 4/30/2009 $ 9,231 $ 7,262 $ 7,031 $11,742 $10,948 5/31/2009 $ 9,702 $ 7,668 $ 7,876 $11,827 $10,949 6/30/2009 $ 9,686 $ 7,683 $ 7,833 $11,895 $10,950 7/31/2009 $10,260 $ 8,264 $ 8,549 $12,087 $10,952 8/31/2009 $10,437 $ 8,562 $ 9,015 $12,212 $10,954 9/30/2009 $10,896 $ 8,882 $ 9,362 $12,340 $10,955 10/31/2009 $10,763 $ 8,717 $ 9,246 $12,401 $10,958 11/30/2009 $11,085 $ 9,240 $ 9,433 $12,561 $10,959 12/31/2009 $11,334 $ 9,418 $ 9,570 $12,365 $10,959
AVERAGE ANNUAL TOTAL RETURN
ADVISOR CLASS 12/31/09 - ------------- -------- 1-Year +28.94% 3-Year +1.97% Since Inception (8/1/06) +4.26%
ADVISOR CLASS (8/1/06-12/31/09) (PERFORMANCE GRAPH)
FRANKLIN TEMPLETON 2015 RETIREMENT MSCI EAFE BARCLAYS CAPITAL U.S. PAYDEN & RYGEL 90-DAY DATE TARGET FUND - ADVISOR CLASS S&P 500 INDEX INDEX AGGREGATE BOND INDEX U.S. TREASURY INDEX - ---------- --------------------------- ------------- --------- --------------------- --------------------- 8/1/2006 $10,000 $10,000 $10,000 $10,000 $10,000 8/31/2006 $10,160 $10,238 $10,278 $10,153 $10,044 9/30/2006 $10,200 $10,502 $10,296 $10,242 $10,088 10/31/2006 $10,500 $10,844 $10,697 $10,310 $10,127 11/30/2006 $10,790 $11,050 $11,020 $10,430 $10,170 12/31/2006 $10,875 $11,205 $11,366 $10,369 $10,214 1/31/2007 $11,028 $11,375 $11,444 $10,365 $10,256 2/28/2007 $11,028 $11,152 $11,538 $10,525 $10,296 3/31/2007 $11,182 $11,277 $11,838 $10,525 $10,343 4/30/2007 $11,487 $11,776 $12,374 $10,582 $10,387 5/31/2007 $11,762 $12,187 $12,608 $10,502 $10,434 6/30/2007 $11,731 $11,985 $12,627 $10,471 $10,473 7/31/2007 $11,545 $11,613 $12,442 $10,558 $10,513 8/31/2007 $11,597 $11,787 $12,251 $10,687 $10,573 9/30/2007 $12,105 $12,228 $12,909 $10,768 $10,611 10/31/2007 $12,499 $12,423 $13,417 $10,865 $10,644 11/30/2007 $12,043 $11,903 $12,980 $11,060 $10,692 12/31/2007 $11,986 $11,821 $12,688 $11,091 $10,716 1/31/2008 $11,374 $11,112 $11,517 $11,278 $10,771 2/29/2008 $11,353 $10,751 $11,686 $11,293 $10,790 3/31/2008 $11,196 $10,704 $11,569 $11,332 $10,815 4/30/2008 $11,608 $11,226 $12,211 $11,308 $10,826 5/31/2008 $11,830 $11,371 $12,354 $11,225 $10,832 6/30/2008 $11,208 $10,412 $11,346 $11,216 $10,848 7/31/2008 $11,068 $10,325 $10,982 $11,207 $10,869 8/31/2008 $11,101 $10,474 $10,540 $11,314 $10,884 9/30/2008 $10,282 $ 9,541 $ 9,020 $11,162 $10,914 10/31/2008 $ 8,994 $ 7,939 $ 7,200 $10,898 $10,931 11/30/2008 $ 8,648 $ 7,369 $ 6,814 $11,253 $10,943 12/31/2008 $ 8,943 $ 7,447 $ 7,225 $11,673 $10,941 1/31/2009 $ 8,646 $ 6,820 $ 6,517 $11,570 $10,940 2/28/2009 $ 8,197 $ 6,094 $ 5,851 $11,526 $10,941 3/31/2009 $ 8,703 $ 6,627 $ 6,224 $11,686 $10,945 4/30/2009 $ 9,367 $ 7,262 $ 7,031 $11,742 $10,948 5/31/2009 $ 9,842 $ 7,668 $ 7,876 $11,827 $10,949 6/30/2009 $ 9,838 $ 7,683 $ 7,833 $11,895 $10,950 7/31/2009 $10,429 $ 8,264 $ 8,549 $12,087 $10,952 8/31/2009 $10,608 $ 8,562 $ 9,015 $12,212 $10,954 9/30/2009 $11,084 $ 8,882 $ 9,362 $12,340 $10,955 10/31/2009 $10,949 $ 8,717 $ 9,246 $12,401 $10,958 11/30/2009 $11,274 $ 9,240 $ 9,433 $12,561 $10,959 12/31/2009 $11,531 $ 9,418 $ 9,570 $12,365 $10,959
Annual Report | 11 Performance Summary (CONTINUED) ENDNOTES WHILE AN ASSET ALLOCATION PLAN CAN BE A VALUABLE TOOL TO HELP REDUCE OVERALL VOLATILITY, ALL INVESTMENTS INVOLVE SOME DEGREE OF RISK. GENERALLY, INVESTORS SHOULD BE COMFORTABLE WITH FLUCTUATION IN THE VALUE OF THEIR INVESTMENTS, ESPECIALLY OVER THE SHORT TERM. STOCKS HAVE HISTORICALLY OUTPERFORMED OTHER ASSET CLASSES OVER THE LONG TERM, BUT THEY TEND TO FLUCTUATE MORE DRAMATICALLY OVER THE SHORTER TERM. BOND PRICES GENERALLY MOVE IN THE OPPOSITE DIRECTION OF INTEREST RATES. THUS, AS PRICES OF BONDS IN THE FUND ADJUST TO A RISE IN INTEREST RATES, THE FUND'S SHARE PRICE MAY DECLINE. BECAUSE THE FUND INVESTS IN UNDERLYING FUNDS, WHICH MAY ENGAGE IN A VARIETY OF INVESTMENT STRATEGIES INVOLVING CERTAIN RISKS, THE FUND MAY BE SUBJECT TO THOSE SAME RISKS. THESE RISKS ARE DESCRIBED IN THE FUND'S PROSPECTUS. CLASS C: These shares have higher annual fees and expenses than Class A shares. CLASS R: Shares are available to certain eligible investors as described in the prospectus. These shares have higher annual fees and expenses than Class A shares. ADVISOR CLASS: Shares are available to certain eligible investors as described in the prospectus. (1.) If the manager had not waived fees, the Fund's total returns would have been lower. (2.) Cumulative total return represents the change in value of an investment over the periods indicated. (3.) Average annual total return represents the average annual change in value of an investment over the periods indicated. (4.) These figures represent the value of a hypothetical $10,000 investment in the Fund over the periods indicated. (5.) Figures are as stated in the Fund's prospectus current as of the date of this report. In periods of volatility, assets may decline significantly, causing total annual Fund operating expenses to become higher than the figures shown. (6.) Source: (C) 2009 Morningstar. See page 6 for descriptions of the S&P 500, the MSCI EAFE Index, the BC U.S. Aggregate Index and the P&R 90 Day U.S. T-Bill Index. 12 | Annual Report Your Fund's Expenses FRANKLIN TEMPLETON 2015 RETIREMENT TARGET FUND As a Fund shareholder, you can incur two types of costs: - - Transaction costs, including sales charges (loads) on Fund purchases; and - - Ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses. The following table shows ongoing costs of investing in the Fund and can help you understand these costs and compare them with those of other mutual funds. The table assumes a $1,000 investment held for the six months indicated. ACTUAL FUND EXPENSES The first line (Actual) for each share class listed in the table provides actual account values and expenses. The "Ending Account Value" is derived from the Fund's actual return, which includes the effect of Fund expenses. You can estimate the expenses you paid during the period by following these steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS ILLUSTRATION: 1. Divide your account value by $1,000. IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6. 2. Multiply the result by the number under the heading "Expenses Paid During Period." IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50. In this illustration, the estimated expenses paid this period are $64.50. HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS Information in the second line (Hypothetical) for each class in the table can help you compare ongoing costs of investing in the Fund with those of other mutual funds. This information may not be used to estimate the actual ending account balance or expenses you paid during the period. The hypothetical "Ending Account Value" is based on the actual expense ratio for each class and an assumed 5% annual rate of return before expenses, which does not represent the Fund's actual return. The figure under the heading "Expenses Paid During Period" shows the hypothetical expenses your account would have incurred under this scenario. You can compare this figure with the 5% hypothetical examples that appear in shareholder reports of other funds. Annual Report | 13 Your Fund's Expenses (CONTINUED) PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES. Therefore, the second line for each class is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transaction costs were included, your total costs would have been higher. Please refer to the Fund prospectus for additional information on operating expenses.
BEGINNING ENDING EXPENSES PAID EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* DURING PERIOD** 7/1/09 12/31/09 7/1/09-12/31/09 7/1/09-12/31/09 ------------- ------------- --------------- --------------- CLASS A Actual $1,000 $1,285.00 $2.59 $7.31 Hypothetical (5% return before expenses) $1,000 $1,022.94 $2.29 $6.46 CLASS C Actual $1,000 $1,277.50 $6.60 $11.31 Hypothetical (5% return before expenses) $1,000 $1,019.41 $5.85 $10.01 CLASS R Actual $1,000 $1,283.20 $3.74 $8.46 Hypothetical (5% return before expenses) $1,000 $1,021.93 $3.31 $7.48 ADVISOR CLASS Actual $1,000 $1,289.40 $0.87 $5.60 Hypothetical (5% return before expenses) $1,000 $1,024.45 $0.77 $4.94
- ---------- * Expenses are calculated using the most recent six-month expense ratio excluding expenses of the underlying funds, net of expense waivers, annualized for each class (A: 0.45%; C: 1.15%; R: 0.65%; and Advisor: 0.15%), multiplied by the average account value over the period, multiplied by 184/365 to reflect the one-half year period. A portion of the Fund's expenses have been paid by the underlying funds in which the Fund invests. ** Expenses are calculated using the most recent six-month expense ratio including expenses of the underlying funds, net of expense waivers, annualized for each class (A: 1.27%; C: 1.97%; R: 1.47%; and Advisor: 0.97%), multiplied by the average account value over the period, multiplied by 184/365 to reflect the one-half year period. A portion of the Fund's expenses have been paid by the underlying funds in which the Fund invests. 14 | Annual Report Franklin Templeton 2025 Retirement Target Fund YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Templeton 2025 Retirement Target Fund seeks the highest level of long-term total return, which consists of capital appreciation and income, consistent with the Fund's asset allocation. The Fund allocates among the broad asset classes of equity, fixed income and short-term (money market) investments by investing in a distinctly weighted combination of Franklin Templeton mutual funds (underlying funds), with an increasing emphasis on income as the target date of 2025 approaches. ASSET ALLOCATION* Franklin Templeton 2025 Retirement Target Fund Based on Total Net Assets as of 12/31/09 Domestic Equity 55.5% Foreign Equity 24.7% Domestic Fixed Income 9.3% Foreign Fixed Income 5.6% Short-Term Investments & Other Net Assets 4.9%
* The asset allocation is based on the Statement of Investments (SOI), which classifies each underlying fund into a broad asset class. This annual report for Franklin Templeton 2025 Retirement Target Fund covers the fiscal year ended December 31, 2009. PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM FIGURES SHOWN. PLEASE VISIT franklintempleton.com OR CALL (800) 342-5236 FOR MOST RECENT MONTH-END PERFORMANCE. PERFORMANCE OVERVIEW Franklin Templeton 2025 Retirement Target Fund - Class A delivered a +31.34% cumulative total return for the 12 months ended December 31, 2009. By comparison the Fund's benchmarks, the Standard & Poor's 500 Index (S&P 500) and Morgan Stanley Capital International (MSCI) Europe, Australasia, Far East (EAFE) Index for equities, the Barclays Capital (BC) U.S. Aggregate Index for THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S SOI, WHICH BEGINS ON PAGE 54. Annual Report | 15 fixed income, and the Payden & Rygel (P&R) 90 Day U.S. T-Bill Index for short-term investments and other net assets, posted total returns of + 26.46%, +32.46%, +5.93%and +0.17%, respectively, during the same time.(1) You can find other performance data in the Performance Summary beginning on page 18. TOP 10 FUND HOLDINGS Franklin Templeton 2025 Retirement Target Fund 12/31/09
% OF TOTAL NET ASSETS ---------- Franklin Flex Cap Growth Fund - - Advisor Class 20.3% Mutual Shares Fund - Class Z 13.7% Mutual European Fund - Class Z 8.9% Franklin Growth Opportunities Fund - - Advisor Class 8.4% Templeton Foreign Fund - - Advisor Class 7.4% Franklin U.S. Government Securities Fund - Advisor Class 5.2% Templeton Global Bond Fund - - Advisor Class 5.0% Franklin Gold and Precious Metals Fund - Advisor Class 4.3% Franklin Total Return Fund - - Advisor Class 4.1% Templeton China World Fund - - Advisor Class 4.0%
INVESTMENT STRATEGY When selecting equity funds, we consider the underlying funds' foreign and domestic exposure, market capitalization ranges, and investment style (growth vs. value). When selecting fixed income funds, our primary focus is on maximizing income appropriate to the Fund's risk profile. In evaluating the risk level of the underlying funds, we analyze such factors as: (a) relative and absolute performance, including correlations with other underlying funds as well as corresponding benchmarks, and (b) their volatility (the variability of returns from one period to the next). We attempt to invest the assets of each Target Fund in the same underlying funds and will vary the underlying funds' allocation percentages based upon each Fund's risk/return level. We change the Fund's target asset allocation gradually over time, and it becomes increasingly conservative as the stated target date draws near. MANAGER'S DISCUSSION The Fund's performance can be attributed largely to its allocation among equities, fixed income securities, and short-term investments and other net assets, and to the actual performance of the selected underlying funds. This allocation shifts every year, in accordance with the retirement date associated with the portfolio. (1.) Source: (C) 2009 Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. The S&P 500 consists of 500 stocks chosen for market size, liquidity and industry group representation. Each stock's weight in the index is proportionate to its market value. The S&P 500 is one of the most widely used benchmarks of U.S. equity performance. The MSCI EAFE Index is a free float-adjusted, market capitalization-weighted index designed to measure equity market performance in global developed markets excluding the U.S. and Canada. The BC U.S. Aggregate Index is a market capitalization-weighted index representing the U.S. investment-grade, fixed-rate, taxable bond market with index components for government and corporate, mortgage pass-through and asset-backed securities. All issues included are SEC registered, taxable, dollar denominated and nonconvertible, must have at least one year to final maturity and must be rated investment grade (Baa3/BBB-/BBB- or higher) by Moody's, Standard & Poor's or Fitch, respectively. The P&R 90 Day U.S. T-Bill Index is a total return index based on a constant maturity instrument. Payden & Rygel includes both accrued interest and change in market price in its monthly total return calculations. The value of Treasuries, if held to maturity, is fixed; principal is guaranteed and interest is fixed. The indexes are unmanaged and include reinvestment of any income or distributions. One cannot invest directly in an index, and an index is not representative of the Fund's portfolio. 16 | Annual Report At period-end, Franklin Templeton 2025 Retirement Target Fund's domestic equity exposure was 69.2% of its total equity weighting, and foreign equity made up the balance. The portfolio was diversified across capitalization sizes and investment styles, and on December 31, 2009, we held shares in large-, mid- and small-capitalization equity funds, representing both growth and value styles. Franklin Flex Cap Growth Fund - Advisor Class, at 20.3% of the Fund's total net assets, was our largest equity fund weighting at period-end. On the fixed income side, domestic exposure was 62.4% of the Fund's total fixed income weighting, with the balance in foreign fixed income. Franklin U.S. Government Securities Fund - Advisor Class was our largest fixed income fund weighting at 5.2% of total net assets. Our largest domestic growth fund holding, Franklin Flex Cap Growth Fund -Advisor Class, and our largest domestic value fund holding, Mutual Shares Fund - Class Z, outperformed the S&P 500. Our largest foreign equity holding, Mutual European Fund - Class Z, trailed the MSCI EAFE Index; however, Templeton Foreign Fund - Advisor Class outperformed. On the fixed income side, Templeton Global Bond Fund - - Advisor Class outperformed the BC U.S. Aggregate Index while Franklin U.S. Government Securities Fund - Advisor Class underperformed. Thank you for your continued participation in Franklin Templeton 2025 Retirement Target Fund. We look forward to serving your future investment needs. (PHOTO OF T. ANTHONY COFFEY) /s/ T. Anthony Coffey T. Anthony Coffey, CFA Portfolio Manager Franklin Templeton 2025 Retirement Target Fund THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2009, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT OUR MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY. THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY, INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED RELIABLE, BUT THE INVESTMENT MANAGER MAKES NO REPRESENTATION OR WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR INVESTMENT MANAGEMENT PHILOSOPHY. Annual Report | 17 Performance Summary as of 12/31/09 FRANKLIN TEMPLETON 2025 RETIREMENT TARGET FUND Your dividend income will vary depending on dividends or interest paid by securities in the Fund's portfolio, adjusted for operating expenses of each class. Capital gain distributions are net profits realized from the sale of portfolio securities. The performance table and graphs do not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares. Total return reflects reinvestment of the Fund's dividends and capital gain distributions, if any, and any unrealized gains or losses. PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: FTRTX) CHANGE 12/31/09 12/31/08 - ----------------------- ------ -------- -------- Net Asset Value (NAV) +$2.07 $9.54 $7.47 DISTRIBUTIONS (1/1/09-12/31/09) Dividend Income $0.1439 Long-Term Capital Gain $0.1001 TOTAL $0.2440
CLASS C (SYMBOL: N/A) CHANGE 12/31/09 12/31/08 - --------------------- ------ -------- -------- Net Asset Value (NAV) +$2.02 $9.45 $7.43 DISTRIBUTIONS (1/1/09-12/31/09) Dividend Income $0.0979 Long-Term Capital Gain $0.1001 TOTAL $0.1980
CLASS R (SYMBOL: N/A) CHANGE 12/31/09 12/31/08 - --------------------- ------ -------- -------- Net Asset Value (NAV) +$2.06 $9.53 $7.47 DISTRIBUTIONS (1/1/09-12/31/09) Dividend Income $0.1313 Long-Term Capital Gain $0.1001 TOTAL $0.2314
ADVISOR CLASS (SYMBOL: N/A) CHANGE 12/31/09 12/31/08 - --------------------------- ------ -------- -------- Net Asset Value (NAV) +$2.07 $9.55 $7.48 DISTRIBUTIONS (1/1/09-12/31/09) Dividend Income $0.1663 Long-Term Capital Gain $0.1001 TOTAL $0.2664
18 | Annual Report Performance Summary (CONTINUED) PERFORMANCE(1) CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURN AND VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 5.75% MAXIMUM INITIAL SALES CHARGE; CLASS C: 1% CONTINGENT DEFERRED SALES CHARGE IN FIRST YEAR ONLY; CLASS R/ADVISOR CLASS: NO SALES CHARGES.
CLASS A 1-YEAR 3-YEAR INCEPTION (8/1/06) - ------- ------- ------ ------------------ Cumulative Total Return(2) +31.34% -1.22% +8.08% Average Annual Total Return(3) +23.72% -2.36% +0.54% Value of $10,000 Investment(4) $12,372 $9,308 $10,186 Total Annual Operating Expenses(5) Without Waiver 2.32% With Waiver 1.26%
CLASS C 1-YEAR 3-YEAR INCEPTION (8/1/06) - ------- ------- ------ ------------------ Cumulative Total Return(2) +30.18% -3.36% +5.53% Average Annual Total Return(3) +29.18% -1.13% +1.59% Value of $10,000 Investment(4) $12,918 $9,664 $10,553 Total Annual Operating Expenses(5) Without Waiver 3.02% With Waiver 1.96%
CLASS R 1-YEAR 3-YEAR INCEPTION (8/1/06) - ------- ------- ------ ------------------ Cumulative Total Return(2) +31.03% -1.75% +7.40% Average Annual Total Return(3) +31.03% -0.59% +2.11% Value of $10,000 Investment(4) $13,103 $9,825 $10,740 Total Annual Operating Expenses(5) Without Waiver 2.52% With Waiver 1.46%
ADVISOR CLASS 1-YEAR 3-YEAR INCEPTION (8/1/06) - ------------- ------- ------ ------------------ Cumulative Total Return(2) +31.61% -0.41% +9.13% Average Annual Total Return(3) +31.61% -0.14% +2.59% Value of $10,000 Investment(4) $13,161 $9,959 $10,913 Total Annual Operating Expenses(5) Without Waiver 2.02% With Waiver 0.96%
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM FIGURES SHOWN. FOR MOST RECENT MONTH-END PERFORMANCE, GO TO franklintempleton.com OR CALL (800) 342-5236. THE INVESTMENT MANAGER HAS CONTRACTUALLY AGREED TO WAIVE OR LIMIT ITS FEES AND TO ASSUME AS ITS OWN EXPENSE CERTAIN EXPENSES OTHERWISE PAYABLE BY THE FUND SO THAT COMMON EXPENSES (I.E., A COMBINATION OF ASSET ALLOCATION FEES AND OTHER EXPENSES, BUT EXCLUDING RULE 12B-1 FEES AND ACQUIRED FUND FEES AND EXPENSES) FOR EACH CLASS OF THE FUND DO NOT EXCEED 0.15% (OTHER THAN CERTAIN NONROUTINE EXPENSES OR COSTS, INCLUDING THOSE RELATING TO LITIGATION, INDEMNIFICATION, REORGANIZATIONS AND LIQUIDATIONS) UNTIL 4/30/10. Annual Report | 19 Performance Summary (CONTINUED) TOTAL RETURN INDEX COMPARISON FOR A HYPOTHETICAL $10,000 INVESTMENT(1) Total return represents the change in value of an investment over the periods shown. It includes any applicable maximum sales charge, Fund expenses, account fees and reinvested distributions. The unmanaged indexes include reinvestment of any income or distributions. They differ from the Fund in composition and do not pay management fees or expenses. One cannot invest directly in an index. AVERAGE ANNUAL TOTAL RETURN
CLASS A 12/31/09 - ------- -------- 1-Year +23.72% 3-Year -2.36% Since Inception (8/1/06) +0.54%
CLASS A (8/1/06-12/31/09) (PERFORMANCE GRAPH)
P&R 90-DAY FRANKLIN TEMPLETON BARCLAYS U.S. 2025 RETIREMENT CAPITAL U.S. TREASURY DATE TARGET FUND - CLASS A S&P 500 INDEX MSCI EAFE INDEX AGGREGATE INDEX INDEX - ---------- --------------------- ------------- --------------- --------------- ---------- 8/1/2006 $ 9,425 $10,000 $10,000 $10,000 $10,000 8/31/2006 $ 9,595 $10,238 $10,278 $10,153 $10,044 9/30/2006 $ 9,614 $10,502 $10,296 $10,242 $10,088 10/31/2006 $ 9,934 $10,844 $10,697 $10,310 $10,127 11/30/2006 $10,226 $11,050 $11,020 $10,430 $10,170 12/31/2006 $10,312 $11,205 $11,366 $10,369 $10,214 1/31/2007 $10,494 $11,375 $11,444 $10,365 $10,256 2/28/2007 $10,475 $11,152 $11,538 $10,525 $10,296 3/31/2007 $10,572 $11,277 $11,838 $10,525 $10,343 4/30/2007 $10,898 $11,776 $12,374 $10,582 $10,387 5/31/2007 $11,204 $12,187 $12,608 $10,502 $10,434 6/30/2007 $11,170 $11,985 $12,627 $10,471 $10,473 7/31/2007 $10,956 $11,613 $12,442 $10,558 $10,513 8/31/2007 $11,024 $11,787 $12,251 $10,687 $10,573 9/30/2007 $11,555 $12,228 $12,909 $10,768 $10,611 10/31/2007 $11,964 $12,423 $13,417 $10,865 $10,644 11/30/2007 $11,428 $11,903 $12,980 $11,060 $10,692 12/31/2007 $11,363 $11,821 $12,688 $11,091 $10,716 1/31/2008 $10,619 $11,112 $11,517 $11,278 $10,771 2/29/2008 $10,569 $10,751 $11,686 $11,293 $10,790 3/31/2008 $10,361 $10,704 $11,569 $11,332 $10,815 4/30/2008 $10,848 $11,226 $12,211 $11,308 $10,826 5/31/2008 $11,116 $11,371 $12,354 $11,225 $10,832 6/30/2008 $10,402 $10,412 $11,346 $11,216 $10,848 7/31/2008 $10,238 $10,325 $10,982 $11,207 $10,869 8/31/2008 1$0,259 $10,474 $10,540 $11,314 $10,884 9/30/2008 $ 9,341 $ 9,541 $ 9,020 $11,162 $10,914 10/31/2008 $ 7,873 $ 7,939 $ 7,200 $10,898 $10,931 11/30/2008 $ 7,495 $ 7,369 $ 6,814 $11,253 $10,943 12/31/2008 $ 7,756 $ 7,447 $ 7,225 $11,673 $10,941 1/31/2009 $ 7,434 $ 6,820 $ 6,517 $11,570 $10,940 2/28/2009 $ 6,998 $ 6,094 $ 5,851 $11,526 $10,941 3/31/2009 $ 7,437 $ 6,627 $ 6,224 $11,686 $10,945 4/30/2009 $ 8,072 $ 7,262 $ 7,031 $11,742 $10,948 5/31/2009 $ 8,540 $ 7,668 $ 7,876 $11,827 $10,949 6/30/2009 $ 8,519 $ 7,683 $ 7,833 $11,895 $10,950 7/31/2009 $ 9,088 $ 8,264 $ 8,549 $12,087 $10,952 8/31/2009 $ 9,267 $ 8,562 $ 9,015 $12,212 $10,954 9/30/2009 $ 9,737 $ 8,882 $ 9,362 $12,340 $10,955 10/31/2009 $ 9,567 $ 8,717 $ 9,246 $12,401 $10,958 11/30/2009 $ 9,917 $ 9,240 $ 9,433 $12,561 $10,959 12/31/2009 $10,186 $ 9,418 $ 9,570 $12,365 $10,959
AVERAGE ANNUAL TOTAL RETURN
CLASS C 12/31/09 - ------- -------- 1-Year +29.18% 3-Year -1.13% Since Inception (8/1/06) +1.59%
CLASS C (8/1/06-12/31/09) (PERFORMANCE GRAPH)
FRANKLIN TEMPLETON 2025 RETIREMENT BARCLAYS CAPITAL P&R 90-DAY U.S. DATE TARGET FUND - CLASS C S&P 500 INDEX MSCI EAFE INDEX U.S. AGGREGATE INDEX TREASURY INDEX - ---------- --------------------- ------------- --------------- -------------------- --------------- 8/1/2006 $10,000 $10,000 $10,000 $10,000 $10,000 8/31/2006 $10,170 $10,238 $10,278 $10,153 $10,044 9/30/2006 $10,190 $10,502 $10,296 $10,242 $10,088 10/31/2006 $10,530 $10,844 $10,697 $10,310 $10,127 11/30/2006 $10,830 $11,050 $11,020 $10,430 $10,170 12/31/2006 $10,920 $11,205 $11,366 $10,369 $10,214 1/31/2007 $11,102 $11,375 $11,444 $10,365 $10,256 2/28/2007 $11,082 $11,152 $11,538 $10,525 $10,296 3/31/2007 $11,175 $11,277 $11,838 $10,525 $10,343 4/30/2007 $11,510 $11,776 $12,374 $10,582 $10,387 5/31/2007 $11,834 $12,187 $12,608 $10,502 $10,434 6/30/2007 $11,790 $11,985 $12,627 $10,471 $10,473 7/31/2007 $11,553 $11,613 $12,442 $10,558 $10,513 8/31/2007 $11,625 $11,787 $12,251 $10,687 $10,573 9/30/2007 $12,174 $12,228 $12,909 $10,768 $10,611 10/31/2007 $12,607 $12,423 $13,417 $10,865 $10,644 11/30/2007 $12,019 $11,903 $12,980 $11,060 $10,692 12/31/2007 $11,950 $11,821 $12,688 $11,091 $10,716 1/31/2008 $11,153 $11,112 $11,517 $11,278 $10,771 2/29/2008 $11,101 $10,751 $11,686 $11,293 $10,790 3/31/2008 $10,880 $10,704 $11,569 $11,332 $10,815 4/30/2008 $11,384 $11,226 $12,211 $11,308 $10,826 5/31/2008 $11,656 $11,371 $12,354 $11,225 $10,832 6/30/2008 $10,902 $10,412 $11,346 $11,216 $10,848 7/31/2008 $10,719 $10,325 $10,982 $11,207 $10,869 8/31/2008 $10,740 $10,474 $10,540 $11,314 $10,884 9/30/2008 $ 9,772 $ 9,541 $ 9,020 $11,162 $10,914 10/31/2008 $ 8,233 $ 7,939 $ 7,200 $10,898 $10,931 11/30/2008 $ 7,835 $ 7,369 $ 6,814 $11,253 $10,943 12/31/2008 $ 8,106 $ 7,447 $ 7,225 $11,673 $10,941 1/31/2009 $ 7,768 $ 6,820 $ 6,517 $11,570 $10,940 2/28/2009 $ 7,299 $ 6,094 $ 5,851 $11,526 $10,941 3/31/2009 $ 7,760 $ 6,627 $ 6,224 $11,686 $10,945 4/30/2009 $ 8,416 $ 7,262 $ 7,031 $11,742 $10,948 5/31/2009 $ 8,897 $ 7,668 $ 7,876 $11,827 $10,949 6/30/2009 $ 8,864 $ 7,683 $ 7,833 $11,895 $10,950 7/31/2009 $ 9,451 $ 8,264 $ 8,549 $12,087 $10,952 8/31/2009 $ 9,628 $ 8,562 $ 9,015 $12,212 $10,954 9/30/2009 $10,098 $ 8,882 $ 9,362 $12,340 $10,955 10/31/2009 $ 9,932 $ 8,717 $ 9,246 $12,401 $10,958 11/30/2009 $10,276 $ 9,240 $ 9,433 $12,561 $10,959 12/31/2009 $10,553 $ 9,418 $ 9,570 $12,365 $10,959
20 | Annual Report Performance Summary (CONTINUED) AVERAGE ANNUAL TOTAL RETURN
CLASS R 12/31/09 - ------- -------- 1-Year +31.03% 3-Year -0.59% Since Inception (8/1/06) +2.11%
CLASS R (8/1/06-12/31/09) (PERFORMANCE GRAPH)
FRANKLIN TEMPLETON P&R 90-DAY 2025 RETIREMENT BARCLAYS CAPITAL U.S. TREASURY DATE TARGET FUND - CLASS R S&P 500 INDEX MSCI EAFE INDEX U.S. AGGREGATE INDEX INDEX - ---------- --------------------- ------------- --------------- -------------------- ------------- 8/1/2006 $10,000 $10,000 $10,000 $10,000 $10,000 8/31/2006 $10,180 $10,238 $10,278 $10,153 $10,044 9/30/2006 $10,200 $10,502 $10,296 $10,242 $10,088 10/31/2006 $10,540 $10,844 $10,697 $10,310 $10,127 11/30/2006 $10,840 $11,050 $11,020 $10,430 $10,170 12/31/2006 $10,931 $11,205 $11,366 $10,369 $10,214 1/31/2007 $11,124 $11,375 $11,444 $10,365 $10,256 2/28/2007 $11,103 $11,152 $11,538 $10,525 $10,296 3/31/2007 $11,207 $11,277 $11,838 $10,525 $10,343 4/30/2007 $11,552 $11,776 $12,374 $10,582 $10,387 5/31/2007 $11,877 $12,187 $12,608 $10,502 $10,434 6/30/2007 $11,838 $11,985 $12,627 $10,471 $10,473 7/31/2007 $11,601 $11,613 $12,442 $10,558 $10,513 8/31/2007 $11,683 $11,787 $12,251 $10,687 $10,573 9/30/2007 $12,241 $12,228 $12,909 $10,768 $10,611 10/31/2007 $12,675 $12,423 $13,417 $10,865 $10,644 11/30/2007 $12,097 $11,903 $12,980 $11,060 $10,692 12/31/2007 $12,036 $11,821 $12,688 $11,091 $10,716 1/31/2008 $11,236 $11,112 $11,517 $11,278 $10,771 2/29/2008 $11,184 $10,751 $11,686 $11,293 $10,790 3/31/2008 $10,960 $10,704 $11,569 $11,332 $10,815 4/30/2008 $11,476 $11,226 $12,211 $11,308 $10,826 5/31/2008 $11,750 $11,371 $12,354 $11,225 $10,832 6/30/2008 $11,003 $10,412 $11,346 $11,216 $10,848 7/31/2008 $10,819 $10,325 $10,982 $11,207 $10,869 8/31/2008 $10,841 $10,474 $10,540 $11,314 $10,884 9/30/2008 $ 9,868 $ 9,541 $ 9,020 $11,162 $10,914 10/31/2008 $ 8,312 $ 7,939 $ 7,200 $10,898 $10,931 11/30/2008 $ 7,923 $ 7,369 $ 6,814 $11,253 $10,943 12/31/2008 $ 8,197 $ 7,447 $ 7,225 $11,673 $10,941 1/31/2009 $ 7,856 $ 6,820 $ 6,517 $11,570 $10,940 2/28/2009 $ 7,385 $ 6,094 $ 5,851 $11,526 $10,941 3/31/2009 $ 7,849 $ 6,627 $ 6,224 $11,686 $10,945 4/30/2009 $ 8,519 $ 7,262 $ 7,031 $11,742 $10,948 5/31/2009 $ 9,014 $ 7,668 $ 7,876 $11,827 $10,949 6/30/2009 $ 8,992 $ 7,683 $ 7,833 $11,895 $10,950 7/31/2009 $ 9,593 $ 8,264 $ 8,549 $12,087 $10,952 8/31/2009 $ 9,771 $ 8,562 $ 9,015 $12,212 $10,954 9/30/2009 $10,258 $ 8,882 $ 9,362 $12,340 $10,955 10/31/2009 $10,091 $ 8,717 $ 9,246 $12,401 $10,958 11/30/2009 $10,449 $ 9,240 $ 9,433 $12,561 $10,959 12/31/2009 $10,740 $ 9,418 $ 9,570 $12,365 $10,959
AVERAGE ANNUAL TOTAL RETURN
ADVISOR CLASS 12/31/09 - ------------- -------- 1-Year +31.61% 3-Year -0.14% Since Inception (8/1/06) +2.59%
ADVISOR CLASS (8/1/06-12/31/09) (PERFORMANCE GRAPH)
FRANKLIN TEMPLETON 2025 BARCLAYS P&R 90-DAY RETIREMENT TARGET FUND CAPITAL U.S. U.S. TREASURY DATE - ADVISOR CLASS S&P 500 INDEX MSCI EAFE INDEX AGGREGATE INDEX INDEX - ---------- ----------------------- ------------- --------------- --------------- ------------- 8/1/2006 $10,000 $10,000 $10,000 $10,000 $10,000 8/31/2006 $10,180 $10,238 $10,278 $10,153 $10,044 9/30/2006 $10,210 $10,502 $10,296 $10,242 $10,088 10/31/2006 $10,550 $10,844 $10,697 $10,310 $10,127 11/30/2006 $10,860 $11,050 $11,020 $10,430 $10,170 12/31/2006 $10,957 $11,205 $11,366 $10,369 $10,214 1/31/2007 $11,140 $11,375 $11,444 $10,365 $10,256 2/28/2007 $11,130 $11,152 $11,538 $10,525 $10,296 3/31/2007 $11,234 $11,277 $11,838 $10,525 $10,343 4/30/2007 $11,579 $11,776 $12,374 $10,582 $10,387 5/31/2007 $11,914 $12,187 $12,608 $10,502 $10,434 6/30/2007 $11,880 $11,985 $12,627 $10,471 $10,473 7/31/2007 $11,652 $11,613 $12,442 $10,558 $10,513 8/31/2007 $11,725 $11,787 $12,251 $10,687 $10,573 9/30/2007 $12,297 $12,228 $12,909 $10,768 $10,611 10/31/2007 $12,743 $12,423 $13,417 $10,865 $10,644 11/30/2007 $12,163 $11,903 $12,980 $11,060 $10,692 12/31/2007 $12,104 $11,821 $12,688 $11,091 $10,716 1/31/2008 $11,301 $11,112 $11,517 $11,278 $10,771 2/29/2008 $11,259 $10,751 $11,686 $11,293 $10,790 3/31/2008 $11,043 $10,704 $11,569 $11,332 $10,815 4/30/2008 $11,561 $11,226 $12,211 $11,308 $10,826 5/31/2008 $11,847 $11,371 $12,354 $11,225 $10,832 6/30/2008 $11,096 $10,412 $11,346 $11,216 $10,848 7/31/2008 $10,923 $10,325 $10,982 $11,207 $10,869 8/31/2008 $10,955 $10,474 $10,540 $11,314 $10,884 9/30/2008 $ 9,967 $ 9,541 $ 9,020 $11,162 $10,914 10/31/2008 $ 8,404 $ 7,939 $ 7,200 $10,898 $10,931 11/30/2008 $ 8,013 $ 7,369 $ 6,814 $11,253 $10,943 12/31/2008 $ 8,292 $ 7,447 $ 7,225 $11,673 $10,941 1/31/2009 $ 7,948 $ 6,820 $ 6,517 $11,570 $10,940 2/28/2009 $ 7,483 $ 6,094 $ 5,851 $11,526 $10,941 3/31/2009 $ 7,952 $ 6,627 $ 6,224 $11,686 $10,945 4/30/2009 $ 8,640 $ 7,262 $ 7,031 $11,742 $10,948 5/31/2009 $ 9,129 $ 7,668 $ 7,876 $11,827 $10,949 6/30/2009 $ 9,107 $ 7,683 $ 7,833 $11,895 $10,950 7/31/2009 $ 9,725 $ 8,264 $ 8,549 $12,087 $10,952 8/31/2009 $ 9,916 $ 8,562 $ 9,015 $12,212 $10,954 9/30/2009 $10,412 $ 8,882 $ 9,362 $12,340 $10,955 10/31/2009 $10,254 $ 8,717 $ 9,246 $12,401 $10,958 11/30/2009 $10,616 $ 9,240 $ 9,433 $12,561 $10,959 12/31/2009 $10,913 $ 9,418 $ 9,570 $12,365 $10,959
Annual Report | 21 Performance Summary (CONTINUED) ENDNOTES WHILE AN ASSET ALLOCATION PLAN CAN BE A VALUABLE TOOL TO HELP REDUCE OVERALL VOLATILITY, ALL INVESTMENTS INVOLVE SOME DEGREE OF RISK. GENERALLY, INVESTORS SHOULD BE COMFORTABLE WITH FLUCTUATION IN THE VALUE OF THEIR INVESTMENTS, ESPECIALLY OVER THE SHORT TERM. STOCKS HAVE HISTORICALLY OUTPERFORMED OTHER ASSET CLASSES OVER THE LONG TERM, BUT THEY TEND TO FLUCTUATE MORE DRAMATICALLY OVER THE SHORTER TERM. BOND PRICES GENERALLY MOVE IN THE OPPOSITE DIRECTION OF INTEREST RATES. THUS, AS PRICES OF BONDS IN THE FUND ADJUST TO A RISE IN INTEREST RATES, THE FUND'S SHARE PRICE MAY DECLINE. BECAUSE THE FUND INVESTS IN UNDERLYING FUNDS, WHICH MAY ENGAGE IN A VARIETY OF INVESTMENT STRATEGIES INVOLVING CERTAIN RISKS, THE FUND MAY BE SUBJECT TO THOSE SAME RISKS. THESE RISKS ARE DESCRIBED IN THE FUND'S PROSPECTUS. CLASS C: These shares have higher annual fees and expenses than Class A shares. CLASS R: Shares are available to certain eligible investors as described in the prospectus. These shares have higher annual fees and expenses than Class A shares. ADVISOR CLASS: Shares are available to certain eligible investors as described in the prospectus. (1.) If the manager had not waived fees, the Fund's total returns would have been lower. (2.) Cumulative total return represents the change in value of an investment over the periods indicated. (3.) Average annual total return represents the average annual change in value of an investment over the periods indicated. (4.) These figures represent the value of a hypothetical $10,000 investment in the Fund over the periods indicated. (5.) Figures are as stated in the Fund's prospectus current as of the date of this report. In times of market volatility, assets may decline significantly, causing total annual Fund operating expenses to become higher than the figures shown. (6.) Source: (C) 2009 Morningstar. See page 16 for descriptions of the S&P 500, the MSCI EAFE Index, the BC U.S. Aggregate Index and the P&R 90 Day U.S. T-Bill Index. 22 | Annual Report Your Fund's Expenses FRANKLIN TEMPLETON 2025 RETIREMENT TARGET FUND As a Fund shareholder, you can incur two types of costs: - - Transaction costs, including sales charges (loads) on Fund purchases; and - - Ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses. The following table shows ongoing costs of investing in the Fund and can help you understand these costs and compare them with those of other mutual funds. The table assumes a $1,000 investment held for the six months indicated. ACTUAL FUND EXPENSES The first line (Actual) for each share class listed in the table provides actual account values and expenses. The "Ending Account Value" is derived from the Fund's actual return, which includes the effect of Fund expenses. You can estimate the expenses you paid during the period by following these steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS ILLUSTRATION: 1. Divide your account value by $1,000. IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6. 2. Multiply the result by the number under the heading "Expenses Paid During Period." IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50. In this illustration, the estimated expenses paid this period are $64.50. HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS Information in the second line (Hypothetical) for each class in the table can help you compare ongoing costs of investing in the Fund with those of other mutual funds. This information may not be used to estimate the actual ending account balance or expenses you paid during the period. The hypothetical "Ending Account Value" is based on the actual expense ratio for each class and an assumed 5% annual rate of return before expenses, which does not represent the Fund's actual return. The figure under the heading "Expenses Paid During Period" shows the hypothetical expenses your account would have incurred under this scenario. You can compare this figure with the 5% hypothetical examples that appear in shareholder reports of other funds. Annual Report | 23 Your Fund's Expenses (CONTINUED) PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES. Therefore, the second line for each class is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transaction costs were included, your total costs would have been higher. Please refer to the Fund prospectus for additional information on operating expenses.
BEGINNING ENDING EXPENSES PAID EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* DURING PERIOD** CLASS A 7/1/09 12/31/09 7/1/09-12/31/09 7/1/09-12/31/09 - ------- ------------- ------------- --------------- --------------- Actual $1,000 $1,195.70 $2.49 $ 7.25 Hypothetical (5% return before expenses) $1,000 $1,022.94 $2.29 $ 6.67 CLASS C Actual $1,000 $1,190.50 $6.35 $11.10 Hypothetical (5% return before expenses) $1,000 $1,019.41 $5.85 $10.21 CLASS R Actual $1,000 $1,194.30 $3.60 $ 8.35 Hypothetical (5% return before expenses) $1,000 $1,021.93 $3.31 $ 7.68 ADVISOR CLASS Actual $1,000 $1,198.30 $0.83 $ 5.60 Hypothetical (5% return before expenses) $1,000 $1,024.45 $0.77 $ 5.14
* Expenses are calculated using the most recent six-month expense ratio excluding expenses of the underlying funds, net of expense waivers, annualized for each class (A: 0.45%; C: 1.15%; R: 0.65%; and Advisor: 0.15%), multiplied by the average account value over the period, multiplied by 184/365 to reflect the one-half year period. A portion of the Fund's expenses have been paid by the underlying funds in which the Fund invests. ** Expenses are calculated using the most recent six-month expense ratio including expenses of the underlying funds, net of expense waivers, annualized for each class (A: 1.31%; C: 2.01%; R: 1.51%; and Advisor: 1.01%), multiplied by the average account value over the period, multiplied by 184/365 to reflect the one-half year period. A portion of the Fund's expenses have been paid by the underlying funds in which the Fund invests. 24 | Annual Report Franklin Templeton 2035 Retirement Target Fund YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Templeton 2035 Retirement Target Fund seeks the highest level of long-term total return, which consists of capital appreciation and income, consistent with the Fund's asset allocation. The Fund allocates among the broad asset classes of equity, fixed income and short-term (money market) investments by investing in a distinctly weighted combination of Franklin Templeton mutual funds (underlying funds), with an increasing emphasis on income as the target date of 2035 approaches. ASSET ALLOCATION* Franklin Templeton 2035 Retirement Target Fund Based on Total Net Assets as of 12/31/09 (BAR CHART) Domestic Equity 66.0% Foreign Equity 29.4% Domestic Fixed Income 2.3% Foreign Fixed Income 1.5% Short-Term Investments & Other Net Assets 0.8%
* The asset allocation is based on the Statement of Investments (SOI), which classifies each underlying fund into a broad asset class. We are pleased to bring you Franklin Templeton 2035 Retirement Target Fund's annual report for the fiscal year ended December 31, 2009. PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM FIGURES SHOWN. PLEASE VISIT franklintempleton.com OR CALL (800) 342-5236 FOR MOST RECENT MONTH-END PERFORMANCE. PERFORMANCE OVERVIEW Franklin Templeton 2035 Retirement Target Fund - Class A delivered a +35.04% cumulative total return for the 12 months ended December 31, 2009. By comparison the Fund's benchmarks, the Standard & Poor's 500 Index (S&P 500) and Morgan Stanley Capital International (MSCI) Europe, Australasia, Far East (EAFE) Index for equities, the Barclays Capital (BC) U.S. Aggregate Index for fixed income, and the Payden & Rygel (P&R) 90 Day U.S. T-Bill Index for short-term investments and other net assets, posted total returns of +26.46%, +32.46%, +5.93% and +0.17%, respectively, during the same time.(1) You can find other performance data in the Performance Summary beginning on page 28. (1.) Source: (C) 2009 Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. The S&P 500 consists of 500 stocks chosen for market size, liquidity and industry group representation. Each stock's weight in the index is proportionate to its market value. The S&P 500 is one of the most widely used benchmarks of U.S. equity performance. The MSCI EAFE Index is a free float-adjusted, market capitalization-weighted index designed to measure equity market performance in global developed markets excluding the U.S. and Canada. The BC U.S. Aggregate Index is a market capitalization-weighted index representing the U.S. investment-grade, fixed-rate, taxable bond market with index components for government and corporate, mortgage pass-through and asset-backed securities. All issues included are SEC registered, taxable, dollar denominated and nonconvertible, must have at least one year to final maturity and must be rated investment grade (Baa3/BBB-/BBB- or higher) by Moody's, Standard & Poor's or Fitch, respectively. The P&R 90 Day U.S. T-Bill Index is a total return index based on a constant maturity instrument. Payden & Rygel includes both accrued interest and change in market price in its monthly total return calculations. The value of Treasuries, if held to maturity, is fixed; principal is guaranteed and interest is fixed. The indexes are unmanaged and include reinvestment of any income or distributions. One cannot invest directly in an index, and an index is not representative of the Fund's portfolio. THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S SOI, WHICH BEGINS ON PAGE 59. Annual Report | 25 TOP 10 FUND HOLDINGS Franklin Templeton 2035 Retirement Target Fund 12/31/09
% OF TOTAL NET ASSETS ---------- Franklin Flex Cap Growth Fund - - Advisor Class 23.5% Mutual Shares Fund - Class Z 16.9% Mutual European Fund - Class Z 10.5% Franklin Growth Opportunities Fund - - Advisor Class 9.8% Templeton Foreign Fund - - Advisor Class 8.8% Franklin Gold and Precious Metals Fund - Advisor Class 5.4% Templeton China World Fund - - Advisor Class 4.8% Franklin Natural Resources Fund - - Advisor Class 4.4% Franklin MicroCap Value Fund - - Advisor Class 4.2% Franklin Small Cap Growth Fund - - Advisor Class 4.2%
INVESTMENT STRATEGY When selecting equity funds, we consider the underlying funds' foreign and domestic exposure, market capitalization ranges, and investment style (growth vs. value). When selecting fixed income funds, our primary focus is on obtaining a maximum amount of current income. In evaluating the risk level of the underlying funds, we analyze such factors as: (a) relative and absolute performance, including correlations with other underlying funds as well as corresponding benchmarks, and (b) their volatility (the variability of returns from one period to the next). We attempt to invest the assets of each Target Fund in the same underlying funds and will vary the underlying funds' allocation percentages based upon each Fund's risk/return level. We change the Fund's target asset allocation gradually over time, and it becomes increasingly conservative as the stated target date draws near. MANAGER'S DISCUSSION The Fund's performance can be attributed largely to its allocation among equities, fixed income securities, and short-term investments and other net assets, and to the actual performance of the selected underlying funds. This allocation shifts every year, in accordance with the retirement date associated with the portfolio. At period-end, Franklin Templeton 2035 Retirement Target Fund's domestic equity exposure was 69.2% of its total equity weighting, and foreign equity made up the balance. The portfolio was diversified across capitalization sizes and investment styles, and on December 31, 2009, we held shares in large-, mid- and small-capitalization equity funds, representing both growth and value styles. Franklin Flex Cap Growth Fund - Advisor Class, at 23.5% of the Fund's total net assets, was our largest equity fund weighting at period-end. On the fixed income side, domestic exposure was 60.5% of the Fund's total fixed income weighting. Our largest domestic growth fund holding, Franklin Flex Cap Growth Fund -Advisor Class, and our largest domestic value fund holding, Mutual Shares Fund - Class Z, outperformed the S&P 500. Our largest foreign equity holding, Mutual European Fund - Class Z, trailed the MSCI EAFE Index; however, Templeton Foreign Fund - Advisor Class outperformed. 26 | Annual Report Thank you for your continued participation in Franklin Templeton 2035 Retirement Target Fund. We look forward to serving your future investment needs. (PHOTO OF T. ANTHONY COFFEY) /s/ T. Anthony Coffey, CFA T. Anthony Coffey, CFA Portfolio Manager Franklin Templeton 2035 Retirement Target Fund THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2009, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT OUR MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY. THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY, INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED RELIABLE, BUT THE INVESTMENT MANAGER MAKES NO REPRESENTATION OR WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR INVESTMENT MANAGEMENT PHILOSOPHY. Annual Report | 27 Performance Summary as of 12/31/09 FRANKLIN TEMPLETON 2035 RETIREMENT TARGET FUND Your dividend income will vary depending on dividends or interest paid by securities in the Fund's portfolio, adjusted for operating expenses of each class. Capital gain distributions are net profits realized from the sale of portfolio securities. The performance table and graphs do not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares. Total return reflects reinvestment of the Fund's dividends and capital gain distributions, if any, and any unrealized gains or losses. PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: N/A) CHANGE 12/31/09 12/31/08 - --------------------- ------ -------- -------- Net Asset Value (NAV) +$2.24 $9.36 $7.12 DISTRIBUTIONS (1/1/09-12/31/09) Dividend Income $0.1274 Long-Term Capital Gain $0.0982 TOTAL $0.2256
CLASS C (SYMBOL: N/A) CHANGE 12/31/09 12/31/08 - --------------------- ------ -------- -------- Net Asset Value (NAV) +$2.19 $9.25 $7.06 DISTRIBUTIONS (1/1/09-12/31/09) Dividend Income $0.0846 Long-Term Capital Gain $0.0982 TOTAL $0.1828
CLASS R (SYMBOL: N/A) CHANGE 12/31/09 12/31/08 - --------------------- ------ -------- -------- Net Asset Value (NAV) +$2.24 $9.37 $7.13 DISTRIBUTIONS (1/1/09-12/31/09) Dividend Income $0.1136 Long-Term Capital Gain $0.0982 TOTAL $0.2118
ADVISOR CLASS (SYMBOL: N/A) CHANGE 12/31/09 12/31/08 - --------------------------- ------ -------- -------- Net Asset Value (NAV) +$2.25 $9.39 $7.14 DISTRIBUTIONS (1/1/09-12/31/09) Dividend Income $0.1505 Long-Term Capital Gain $0.0982 TOTAL $0.2487
28 | Annual Report Performance Summary (CONTINUED) PERFORMANCE(1) CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURN AND VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 5.75% MAXIMUM INITIAL SALES CHARGE; CLASS C: 1% CONTINGENT DEFERRED SALES CHARGE IN FIRST YEAR ONLY; CLASS R/ADVISOR CLASS: NO SALES CHARGES.
CLASS A 1-YEAR 3-YEAR INCEPTION (8/1/06) - ------- ------- ------ ------------------ Cumulative Total Return(2) +35.04% -3.98% +6.04% Average Annual Total Return(3) +27.35% -3.26% -0.02% Value of $10,000 Investment(4) $12,735 $9,053 $9,994 Total Annual Operating Expenses(5) Without Waiver 2.99% With Waiver 1.30%
CLASS C 1-YEAR 3-YEAR INCEPTION (8/1/06) - ------- ------- ------ ------------------ Cumulative Total Return(2) +34.00% -6.07% +3.46% Average Annual Total Return(3) +33.00% -2.06% +1.00% Value of $10,000 Investment(4) $13,300 $9,393 $10,346 Total Annual Operating Expenses(5) Without Waiver 3.69% With Waiver 2.00%
CLASS R 1-YEAR 3-YEAR INCEPTION (8/1/06) - ------- ------- ------ ------------------ Cumulative Total Return(2) +34.79% -4.53% +5.40% Average Annual Total Return(3) +34.79% -1.53% +1.55% Value of $10,000 Investment(4) $13,479 $9,547 $10,540 Total Annual Operating Expenses(5) Without Waiver 3.19% With Waiver 1.50%
ADVISOR CLASS 1-YEAR 3-YEAR INCEPTION (8/1/06) - ------------- ------- ------ ------------------ Cumulative Total Return(2) +35.42% -3.08% +7.20% Average Annual Total Return(3) +35.42% -1.04% +2.06% Value of $10,000 Investment(4) $13,542 $9,692 $10,720 Total Annual Operating Expenses(5) Without Waiver 2.69% With Waiver 1.00%
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM FIGURES SHOWN. FOR MOST RECENT MONTH-END PERFORMANCE, GO TO franklintempleton.com OR CALL (800) 342-5236. THE INVESTMENT MANAGER HAS CONTRACTUALLY AGREED TO WAIVE OR LIMIT ITS FEES AND TO ASSUME AS ITS OWN EXPENSE CERTAIN EXPENSES OTHERWISE PAYABLE BY THE FUND SO THAT COMMON EXPENSES (I.E., A COMBINATION OF ASSET ALLOCATION FEES AND OTHER EXPENSES, BUT EXCLUDING RULE 12B-1 FEES AND ACQUIRED FUND FEES AND EXPENSES) FOR EACH CLASS OF THE FUND DO NOT EXCEED 0.15% (OTHER THAN CERTAIN NONROUTINE EXPENSES OR COSTS, INCLUDING THOSE RELATING TO LITIGATION, INDEMNIFICATION, REORGANIZATIONS AND LIQUIDATIONS) UNTIL 4/30/10. Annual Report | 29 Performance Summary (CONTINUED) TOTAL RETURN INDEX COMPARISON FOR A HYPOTHETICAL $10,000 INVESTMENT(1) Total return represents the change in value of an investment over the periods shown. It includes any applicable maximum sales charge, Fund expenses, account fees and reinvested distributions. The unmanaged indexes include reinvestment of any income or distributions. They differ from the Fund in composition and do not pay management fees or expenses. One cannot invest directly in an index. AVERAGE ANNUAL TOTAL RETURN
CLASS A 12/31/09 - ------- -------- 1-Year +27.35% 3-Year -3.26% Since Inception (8/1/06) -0.02%
CLASS A (8/1/06-12/31/09) (PERFORMANCE GRAPH)
FRANKLIN TEMPLETON 2035 RETIREMENT BARCLAYS CAPITAL U.S. PAYDEN & RYGEL 90-DAY DATE TARGET FUND - CLASS A S&P 500 INDEX MSCI EAFE INDEX AGGREGATE BOND INDEX U.S. TREASURY INDEX - ---------- --------------------- ------------- --------------- --------------------- --------------------- 8/1/2006 $ 9,425 $10,000 $10,000 $10,000 $10,000 8/31/2006 $ 9,614 $10,238 $10,278 $10,153 $10,044 9/30/2006 $ 9,632 $10,502 $10,296 $10,242 $10,088 10/31/2006 $ 9,981 $10,844 $10,697 $10,310 $10,127 11/30/2006 $10,311 $11,050 $11,020 $10,430 $10,170 12/31/2006 $10,409 $11,205 $11,366 $10,369 $10,214 1/31/2007 $10,610 $11,375 $11,444 $10,365 $10,256 2/28/2007 $10,552 $11,152 $11,538 $10,525 $10,296 3/31/2007 $10,708 $11,277 $11,838 $10,525 $10,343 4/30/2007 $11,062 $11,776 $12,374 $10,582 $10,387 5/31/2007 $11,416 $12,187 $12,608 $10,502 $10,434 6/30/2007 $11,387 $11,985 $12,627 $10,471 $10,473 7/31/2007 $11,094 $11,613 $12,442 $10,558 $10,513 8/31/2007 $11,182 $11,787 $12,251 $10,687 $10,573 9/30/2007 $11,769 $12,228 $12,909 $10,768 $10,611 10/31/2007 $12,268 $12,423 $13,417 $10,865 $10,644 11/30/2007 $11,622 $11,903 $12,980 $11,060 $10,692 12/31/2007 $11,559 $11,821 $12,688 $11,091 $10,716 1/31/2008 $10,654 $11,112 $11,517 $11,278 $10,771 2/29/2008 $10,594 $10,751 $11,686 $11,293 $10,790 3/31/2008 $10,358 $10,704 $11,569 $11,332 $10,815 4/30/2008 $10,915 $11,226 $12,211 $11,308 $10,826 5/31/2008 $11,243 $11,371 $12,354 $11,225 $10,832 6/30/2008 $10,421 $10,412 $11,346 $11,216 $10,848 7/31/2008 $10,216 $10,325 $10,982 $11,207 $10,869 8/31/2008 $10,247 $10,474 $10,540 $11,314 $10,884 9/30/2008 $ 9,189 $ 9,541 $ 9,020 $11,162 $10,914 10/31/2008 $ 7,567 $ 7,939 $ 7,200 $10,898 $10,931 11/30/2008 $ 7,156 $ 7,369 $ 6,814 $11,253 $10,943 12/31/2008 $ 7,401 $ 7,447 $ 7,225 $11,673 $10,941 1/31/2009 $ 7,026 $ 6,820 $ 6,517 $11,570 $10,940 2/28/2009 $ 6,569 $ 6,094 $ 5,851 $11,526 $10,941 3/31/2009 $ 7,021 $ 6,627 $ 6,224 $11,686 $10,945 4/30/2009 $ 7,709 $ 7,262 $ 7,031 $11,742 $10,948 5/31/2009 $ 8,219 $ 7,668 $ 7,876 $11,827 $10,949 6/30/2009 $ 8,196 $ 7,683 $ 7,833 $11,895 $10,950 7/31/2009 $ 8,798 $ 8,264 $ 8,549 $12,087 $10,952 8/31/2009 $ 8,998 $ 8,562 $ 9,015 $12,212 $10,954 9/30/2009 $ 9,491 $ 8,882 $ 9,362 $12,340 $10,955 10/31/2009 $ 9,301 $ 8,717 $ 9,246 $12,401 $10,958 11/30/2009 $ 9,671 $ 9,240 $ 9,433 $12,561 $10,959 12/31/2009 $ 9,994 $ 9,418 $ 9,570 $12,365 $10,959
AVERAGE ANNUAL TOTAL RETURN
CLASS C 12/31/09 - ------- -------- 1-Year +33.00% 3-Year -2.06% Since Inception (8/1/06) +1.00%
CLASS C (8/1/06-12/31/09) (PERFORMANCE GRAPH)
FRANKLIN TEMPLETON 2035 RETIREMENT BARCLAYS CAPITAL U.S. PAYDEN & RYGEL 90-DAY DATE TARGET FUND - CLASS C S&P 500 INDEX MSCI EAFE INDEX AGGREGATE BOND INDEX U.S. TREASURY INDEX - ---------- --------------------- ------------- --------------- --------------------- --------------------- 8/1/2006 $10,000 $10,000 $10,000 $10,000 $10,000 8/31/2006 $10,190 $10,238 $10,278 $10,153 $10,044 9/30/2006 $10,210 $10,502 $10,296 $10,242 $10,088 10/31/2006 $10,580 $10,844 $10,697 $10,310 $10,127 11/30/2006 $10,910 $11,050 $11,020 $10,430 $10,170 12/31/2006 $11,014 $11,205 $11,366 $10,369 $10,214 1/31/2007 $11,217 $11,375 $11,444 $10,365 $10,256 2/28/2007 $11,146 $11,152 $11,538 $10,525 $10,296 3/31/2007 $11,311 $11,277 $11,838 $10,525 $10,343 4/30/2007 $11,676 $11,776 $12,374 $10,582 $10,387 5/31/2007 $12,051 $12,187 $12,608 $10,502 $10,434 6/30/2007 $12,000 $11,985 $12,627 $10,471 $10,473 7/31/2007 $11,689 $11,613 $12,442 $10,558 $10,513 8/31/2007 $11,782 $11,787 $12,251 $10,687 $10,573 9/30/2007 $12,394 $12,228 $12,909 $10,768 $10,611 10/31/2007 $12,903 $12,423 $13,417 $10,865 $10,644 11/30/2007 $12,208 $11,903 $12,980 $11,060 $10,692 12/31/2007 $12,129 $11,821 $12,688 $11,091 $10,716 1/31/2008 $11,181 $11,112 $11,517 $11,278 $10,771 2/29/2008 $11,108 $10,751 $11,686 $11,293 $10,790 3/31/2008 $10,847 $10,704 $11,569 $11,332 $10,815 4/30/2008 $11,437 $11,226 $12,211 $11,308 $10,826 5/31/2008 $11,763 $11,371 $12,354 $11,225 $10,832 6/30/2008 $10,903 $10,412 $11,346 $11,216 $10,848 7/31/2008 $10,686 $10,325 $10,982 $11,207 $10,869 8/31/2008 $10,708 $10,474 $10,540 $11,314 $10,884 9/30/2008 $ 9,610 $ 9,541 $ 9,020 $11,162 $10,914 10/31/2008 $ 7,903 $ 7,939 $ 7,200 $10,898 $10,931 11/30/2008 $ 7,468 $ 7,369 $ 6,814 $11,253 $10,943 12/31/2008 $ 7,721 $ 7,447 $ 7,225 $11,673 $10,941 1/31/2009 $ 7,327 $ 6,820 $ 6,517 $11,570 $10,940 2/28/2009 $ 6,835 $ 6,094 $ 5,851 $11,526 $10,941 3/31/2009 $ 7,310 $ 6,627 $ 6,224 $11,686 $10,945 4/30/2009 $ 8,023 $ 7,262 $ 7,031 $11,742 $10,948 5/31/2009 $ 8,549 $ 7,668 $ 7,876 $11,827 $10,949 6/30/2009 $ 8,514 $ 7,683 $ 7,833 $11,895 $10,950 7/31/2009 $ 9,147 $ 8,264 $ 8,549 $12,087 $10,952 8/31/2009 $ 9,335 $ 8,562 $ 9,015 $12,212 $10,954 9/30/2009 $ 9,846 $ 8,882 $ 9,362 $12,340 $10,955 10/31/2009 $ 9,635 $ 8,717 $ 9,246 $12,401 $10,958 11/30/2009 $10,024 $ 9,240 $ 9,433 $12,561 $10,959 12/31/2009 $10,346 $ 9,418 $ 9,570 $12,365 $10,959
30 | Annual Report Performance Summary (CONTINUED) AVERAGE ANNUAL TOTAL RETURN
CLASS R 12/31/09 - ------- -------- 1-Year +34.79% 3-Year -1.53% Since Inception (8/1/06) +1.55%
CLASS R (8/1/06-12/31/09) (PERFORMANCE GRAPH)
FRANKLIN TEMPLETON PAYDEN & RYGEL 2035 RETIREMENT BARCLAYS CAPITAL U.S. 90-DAY U.S. DATE TARGET FUND - CLASS R S&P 500 INDEX MSCI EAFE INDEX AGGREGATE BOND INDEX TREASURY INDEX - ---------- --------------------- ------------- --------------- --------------------- -------------- 8/1/2006 $10,000 $10,000 $10,000 $10,000 $10,000 8/31/2006 $10,190 $10,238 $10,278 $10,153 $10,044 9/30/2006 $10,220 $10,502 $10,296 $10,242 $10,088 10/31/2006 $10,590 $10,844 $10,697 $10,310 $10,127 11/30/2006 $10,930 $11,050 $11,020 $10,430 $10,170 12/31/2006 $11,040 $11,205 $11,366 $10,369 $10,214 1/31/2007 $11,253 $11,375 $11,444 $10,365 $10,256 2/28/2007 $11,182 $11,152 $11,538 $10,525 $10,296 3/31/2007 $11,337 $11,277 $11,838 $10,525 $10,343 4/30/2007 $11,712 $11,776 $12,374 $10,582 $10,387 5/31/2007 $12,098 $12,187 $12,608 $10,502 $10,434 6/30/2007 $12,057 $11,985 $12,627 $10,471 $10,473 7/31/2007 $11,746 $11,613 $12,442 $10,558 $10,513 8/31/2007 $11,839 $11,787 $12,251 $10,687 $10,573 9/30/2007 $12,462 $12,228 $12,909 $10,768 $10,611 10/31/2007 $12,981 $12,423 $13,417 $10,865 $10,644 11/30/2007 $12,296 $11,903 $12,980 $11,060 $10,692 12/31/2007 $12,227 $11,821 $12,688 $11,091 $10,716 1/31/2008 $11,278 $11,112 $11,517 $11,278 $10,771 2/29/2008 $11,204 $10,751 $11,686 $11,293 $10,790 3/31/2008 $10,953 $10,704 $11,569 $11,332 $10,815 4/30/2008 $11,544 $11,226 $12,211 $11,308 $10,826 5/31/2008 $11,882 $11,371 $12,354 $11,225 $10,832 6/30/2008 $11,010 $10,412 $11,346 $11,216 $10,848 7/31/2008 $10,803 $10,325 $10,982 $11,207 $10,869 8/31/2008 $10,825 $10,474 $10,540 $11,314 $10,884 9/30/2008 $ 9,714 $ 9,541 $ 9,020 $11,162 $10,914 10/31/2008 $ 7,993 $ 7,939 $ 7,200 $10,898 $10,931 11/30/2008 $ 7,558 $ 7,369 $ 6,814 $11,253 $10,943 12/31/2008 $ 7,819 $ 7,447 $ 7,225 $11,673 $10,941 1/31/2009 $ 7,424 $ 6,820 $ 6,517 $11,570 $10,940 2/28/2009 $ 6,931 $ 6,094 $ 5,851 $11,526 $10,941 3/31/2009 $ 7,408 $ 6,627 $ 6,224 $11,686 $10,945 4/30/2009 $ 8,144 $ 7,262 $ 7,031 $11,742 $10,948 5/31/2009 $ 8,683 $ 7,668 $ 7,876 $11,827 $10,949 6/30/2009 $ 8,648 $ 7,683 $ 7,833 $11,895 $10,950 7/31/2009 $ 9,282 $ 8,264 $ 8,549 $12,087 $10,952 8/31/2009 $ 9,494 $ 8,562 $ 9,015 $12,212 $10,954 9/30/2009 $10,004 $ 8,882 $ 9,362 $12,340 $10,955 10/31/2009 $ 9,803 $ 8,717 $ 9,246 $12,401 $10,958 11/30/2009 $10,205 $ 9,240 $ 9,433 $12,561 $10,959 12/31/2009 $10,540 $ 9,418 $ 9,570 $12,365 $10,959
AVERAGE ANNUAL TOTAL RETURN
ADVISOR CLASS 12/31/09 - ------------- -------- 1-Year +35.42% 3-Year -1.04% Since Inception (8/1/06) +2.06%
ADVISOR CLASS (8/1/06-12/31/09) (PERFORMANCE GRAPH)
FRANKLIN TEMPLETON BARCLAYS CAPITAL 2035 RETIREMENT U.S. AGGREGATE PAYDEN & RYGEL 90-DAY DATE TARGET FUND - ADVISOR CLASS S&P 500 INDEX MSCI EAFE INDEX BOND INDEX U.S. TREASURY INDEX - ---------- --------------------------- ------------- --------------- ---------------- --------------------- 8/1/2006 $10,000 $10,000 $10,000 $10,000 $10,000 8/31/2006 $10,200 $10,238 $10,278 $10,153 $10,044 9/30/2006 $10,230 $10,502 $10,296 $10,242 $10,088 10/31/2006 $10,610 $10,844 $10,697 $10,310 $10,127 11/30/2006 $10,950 $11,050 $11,020 $10,430 $10,170 12/31/2006 $11,060 $11,205 $11,366 $10,369 $10,214 1/31/2007 $11,284 $11,375 $11,444 $10,365 $10,256 2/28/2007 $11,213 $11,152 $11,538 $10,525 $10,296 3/31/2007 $11,388 $11,277 $11,838 $10,525 $10,343 4/30/2007 $11,764 $11,776 $12,374 $10,582 $10,387 5/31/2007 $12,150 $12,187 $12,608 $10,502 $10,434 6/30/2007 $12,120 $11,985 $12,627 $10,471 $10,473 7/31/2007 $11,808 $11,613 $12,442 $10,558 $10,513 8/31/2007 $11,912 $11,787 $12,251 $10,687 $10,573 9/30/2007 $12,535 $12,228 $12,909 $10,768 $10,611 10/31/2007 $13,065 $12,423 $13,417 $10,865 $10,644 11/30/2007 $12,390 $11,903 $12,980 $11,060 $10,692 12/31/2007 $12,314 $11,821 $12,688 $11,091 $10,716 1/31/2008 $11,362 $11,112 $11,517 $11,278 $10,771 2/29/2008 $11,299 $10,751 $11,686 $11,293 $10,790 3/31/2008 $11,047 $10,704 $11,569 $11,332 $10,815 4/30/2008 $11,650 $11,226 $12,211 $11,308 $10,826 5/31/2008 $11,989 $11,371 $12,354 $11,225 $10,832 6/30/2008 $11,125 $10,412 $11,346 $11,216 $10,848 7/31/2008 $10,907 $10,325 $10,982 $11,207 $10,869 8/31/2008 $10,940 $10,474 $10,540 $11,314 $10,884 9/30/2008 $ 9,826 $ 9,541 $ 9,020 $11,162 $10,914 10/31/2008 $ 8,090 $ 7,939 $ 7,200 $10,898 $10,931 11/30/2008 $ 7,653 $ 7,369 $ 6,814 $11,253 $10,943 12/31/2008 $ 7,916 $ 7,447 $ 7,225 $11,673 $10,941 1/31/2009 $ 7,517 $ 6,820 $ 6,517 $11,570 $10,940 2/28/2009 $ 7,029 $ 6,094 $ 5,851 $11,526 $10,941 3/31/2009 $ 7,511 $ 6,627 $ 6,224 $11,686 $10,945 4/30/2009 $ 8,255 $ 7,262 $ 7,031 $11,742 $10,948 5/31/2009 $ 8,800 $ 7,668 $ 7,876 $11,827 $10,949 6/30/2009 $ 8,775 $ 7,683 $ 7,833 $11,895 $10,950 7/31/2009 $ 9,428 $ 8,264 $ 8,549 $12,087 $10,952 8/31/2009 $ 9,642 $ 8,562 $ 9,015 $12,212 $10,954 9/30/2009 $10,174 $ 8,882 $ 9,362 $12,340 $10,955 10/31/2009 $ 9,971 $ 8,717 $ 9,246 $12,401 $10,958 11/30/2009 $10,378 $ 9,240 $ 9,433 $12,561 $10,959 12/31/2009 $10,720 $ 9,418 $ 9,570 $12,365 $10,959
Annual Report | 31 Performance Summary (CONTINUED) ENDNOTES WHILE AN ASSET ALLOCATION PLAN CAN BE A VALUABLE TOOL TO HELP REDUCE OVERALL VOLATILITY, ALL INVESTMENTS INVOLVE SOME DEGREE OF RISK. GENERALLY, INVESTORS SHOULD BE COMFORTABLE WITH FLUCTUATION IN THE VALUE OF THEIR INVESTMENTS, ESPECIALLY OVER THE SHORT TERM. STOCKS HAVE HISTORICALLY OUTPERFORMED OTHER ASSET CLASSES OVER THE LONG TERM, BUT THEY TEND TO FLUCTUATE MORE DRAMATICALLY OVER THE SHORTER TERM. BOND PRICES GENERALLY MOVE IN THE OPPOSITE DIRECTION OF INTEREST RATES. THUS, AS PRICES OF BONDS IN THE FUND ADJUST TO A RISE IN INTEREST RATES, THE FUND'S SHARE PRICE MAY DECLINE. BECAUSE THE FUND INVESTS IN UNDERLYING FUNDS, WHICH MAY ENGAGE IN A VARIETY OF INVESTMENT STRATEGIES INVOLVING CERTAIN RISKS, THE FUND MAY BE SUBJECT TO THOSE SAME RISKS. THESE RISKS ARE DESCRIBED IN THE FUND'S PROSPECTUS. CLASS C: These shares have higher annual fees and expenses than Class A shares. CLASS R: Shares are available to certain eligible investors as described in the prospectus. These shares have higher annual fees and expenses than Class A shares. ADVISOR CLASS: Shares are available to certain eligible investors as described in the prospectus. (1.) If the manager had not waived fees, the Fund's total returns would have been lower. (2.) Cumulative total return represents the change in value of an investment over the periods indicated. (3.) Average annual total return represents the average annual change in value of an investment over the periods indicated. (4.) These figures represent the value of a hypothetical $10,000 investment in the Fund over the periods indicated. (5.) Figures are as stated in the Fund's prospectus current as of the date of this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses to become higher than the figures shown. (6.) Source: (C) 2009 Morningstar. See page 25 for descriptions of the S&P 500, the MSCI EAFE Index, the BC U.S. Aggregate Index and the P&R 90 Day U.S. T-Bill Index. 32 | Annual Report Your Fund's Expenses FRANKLIN TEMPLETON 2035 RETIREMENT TARGET FUND As a Fund shareholder, you can incur two types of costs: - - Transaction costs, including sales charges (loads) on Fund purchases; and - - Ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses. The following table shows ongoing costs of investing in the Fund and can help you understand these costs and compare them with those of other mutual funds. The table assumes a $1,000 investment held for the six months indicated. ACTUAL FUND EXPENSES The first line (Actual) for each share class listed in the table provides actual account values and expenses. The "Ending Account Value" is derived from the Fund's actual return, which includes the effect of Fund expenses. You can estimate the expenses you paid during the period by following these steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS ILLUSTRATION: 1. Divide your account value by $1,000. IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6. 2. Multiply the result by the number under the heading "Expenses Paid During Period." IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50. In this illustration, the estimated expenses paid this period are $64.50. HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS Information in the second line (Hypothetical) for each class in the table can help you compare ongoing costs of investing in the Fund with those of other mutual funds. This information may not be used to estimate the actual ending account balance or expenses you paid during the period. The hypothetical "Ending Account Value" is based on the actual expense ratio for each class and an assumed 5% annual rate of return before expenses, which does not represent the Fund's actual return. The figure under the heading "Expenses Paid During Period" shows the hypothetical expenses your account would have incurred under this scenario. You can compare this figure with the 5% hypothetical examples that appear in shareholder reports of other funds. Annual Report | 33 Your Fund's Expenses (CONTINUED) PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES. Therefore, the second line for each class is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transaction costs were included, your total costs would have been higher. Please refer to the Fund prospectus for additional information on operating expenses.
BEGINNING ENDING EXPENSES PAID EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* DURING PERIOD** CLASS A 7/1/09 12/31/09 7/1/09-12/31/09 7/1/09-12/31/09 - ------- ------------- ------------- --------------- --------------- Actual $1,000 $1,219.30 $2.52 $ 7.66 Hypothetical (5% return before expenses) $1,000 $1,022.94 $2.29 $ 6.97 CLASS C Actual $1,000 $1,215.10 $6.42 $11.56 Hypothetical (5% return before expenses) $1,000 $1,019.41 $5.85 $10.51 CLASS R Actual $1,000 $1,218.80 $3.64 $ 8.78 Hypothetical (5% return before expenses) $1,000 $1,021.93 $3.31 $ 7.98 ADVISOR CLASS Actual $1,000 $1,221.60 $0.84 $ 5.99 Hypothetical (5% return before expenses) $1,000 $1,024.45 $0.77 $ 5.45
* Expenses are calculated using the most recent six-month expense ratio excluding expenses of the underlying funds, net of expense waivers, annualized for each class (A: 0.45%; C: 1.15%; R: 0.65%; and Advisor: 0.15%), multiplied by the average account value over the period, multiplied by 184/365 to reflect the one-half year period. A portion of the Fund's expenses have been paid by the underlying funds in which the Fund invests. ** Expenses are calculated using the most recent six-month expense ratio including expenses of the underlying funds, net of expense waivers, annualized for each class (A: 1.37%; C: 2.07%; R: 1.57%; and Advisor: 1.07%), multiplied by the average account value over the period, multiplied by 184/365 to reflect the one-half year period. A portion of the Fund's expenses have been paid by the underlying funds in which the Fund invests. 34 | Annual Report Franklin Templeton 2045 Retirement Target Fund YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Templeton 2045 Retirement Target Fund seeks the highest level of long-term total return, which consists of capital appreciation and income, consistent with the Fund's asset allocation. The Fund allocates among the broad asset classes of equity, fixed income and short-term (money market) investments by investing in a distinctly weighted combination of Franklin Templeton mutual funds (underlying funds), with an increasing emphasis on income as the target date of 2045 approaches. ASSET ALLOCATION* Franklin Templeton 2045 Retirement Target Fund Based on Total Net Assets as of 12/31/09 (PIE CHART) Domestic Equity ........... 67.7% Foreign Equity ............ 30.6% Short-Term Investments & Other Net Assets ....... 1.7%
* The asset allocation is based on the Statement of Investments (SOI), which classifies each underlying fund into a broad asset class. We are pleased to bring you Franklin Templeton 2045 Retirement Target Fund's annual report for the fiscal year ended December 31, 2009. PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM FIGURES SHOWN. PLEASE VISIT franklintempleton.com OR CALL (800) 342-5236 FOR MOST RECENT MONTH-END PERFORMANCE. PERFORMANCE OVERVIEW Franklin Templeton 2045 Retirement Target Fund - Class A delivered a +36.53% cumulative total return for the 12 months ended December 31, 2009. By comparison the Fund's benchmarks, the Standard & Poor's 500 Index (S&P 500) and Morgan Stanley Capital International (MSCI) Europe, Australasia, Far THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S SOI, WHICH BEGINS ON PAGE 64. Annual Report | 35 East (EAFE) Index for equities, the Barclays Capital (BC) U.S. Aggregate Index for fixed income, and the Payden & Rygel (P&R) 90 Day U.S. T-Bill Index for short-term investments and other net assets, posted total returns of +26.46%, +32.46%, +5.93% and +0.17%, respectively, during the same time.(1) You can find other performance data in the Performance Summary beginning on page 38. TOP 10 FUND HOLDINGS Franklin Templeton 2045 Retirement Target Fund 12/31/09
% OF TOTAL NET ASSETS ---------- Franklin Flex Cap Growth Fund - - Advisor Class 24.1% Mutual Shares Fund - Class Z 16.6% Mutual European Fund - Class Z 10.9% Franklin Growth Opportunities Fund - - Advisor Class 10.4% Templeton Foreign Fund - Advisor Class 9.0% Franklin Gold and Precious Metals Fund - - Advisor Class 5.6% Templeton China World Fund - - Advisor Class 5.1% Franklin Natural Resources Fund - - Advisor Class 4.7% Franklin Small Cap Growth Fund - - Advisor Class 4.4% Franklin MicroCap Value Fund - - Advisor Class 4.4%
INVESTMENT STRATEGY When selecting equity funds, we consider the underlying funds' foreign and domestic exposure, market capitalization ranges, and investment style (growth vs. value). When selecting fixed income funds, our primary focus is on obtaining a maximum amount of current income. In evaluating the risk level of the underlying funds, we analyze such factors as: (a) relative and absolute performance, including correlations with other underlying funds as well as corresponding benchmarks, and (b) their volatility (the variability of returns from one period to the next). We attempt to invest the assets of each Target Fund in the same underlying funds and will vary the underlying funds' allocation percentages based upon each Fund's risk/return level. We change the Fund's target asset allocation gradually over time, and it becomes increasingly conservative as the stated target date draws near. MANAGER'S DISCUSSION The Fund's performance can be attributed largely to its allocation among equities, and short-term investments and other net assets, and to the actual performance of the selected underlying funds. This allocation shifts every year, in accordance with the retirement date associated with the portfolio. (1.) Source: (C) 2009 Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. The S&P 500 consists of 500 stocks chosen for market size, liquidity and industry group representation. Each stock's weight in the index is proportionate to its market value. The S&P 500 is one of the most widely used benchmarks of U.S. equity performance. The MSCI EAFE Index is a free float-adjusted, market capitalization-weighted index designed to measure equity market performance in global developed markets excluding the U.S. and Canada. The BC U.S. Aggregate Index is a market capitalization-weighted index representing the U.S. investment-grade, fixed-rate, taxable bond market with index components for government and corporate, mortgage pass-through and asset-backed securities. All issues included are SEC registered, taxable, dollar denominated and nonconvertible, must have at least one year to final maturity and must be rated investment grade (Baa3/BBB-/BBB- or higher) by Moody's, Standard & Poor's or Fitch, respectively. The P&R 90 Day U.S. T-Bill Index is a total return index based on a constant maturity instrument. Payden & Rygel includes both accrued interest and change in market price in its monthly total return calculations. The value of Treasuries, if held to maturity, is fixed; principal is guaranteed and interest is fixed. The indexes are unmanaged and include reinvestment of any income or distributions. One cannot invest directly in an index, and an index is not representative of the Fund's portfolio. 36 | Annual Report At period-end, Franklin Templeton 2045 Retirement Target Fund's domestic equity exposure was 68.9% of its total equity weighting, and foreign equity made up the balance. The portfolio was diversified across capitalization sizes and investment styles, and on December 31, 2009, we held shares in large-, mid- and small-capitalization equity funds, representing both growth and value styles. Franklin Flex Cap Growth Fund - Advisor Class, at 24.1% of the Fund's total net assets, was our largest equity fund weighting at period-end. Our largest domestic growth fund holding, Franklin Flex Cap Growth Fund - Advisor Class, and our largest domestic value fund holding, Mutual Shares Fund - Class Z, outperformed the S&P 500. Our largest foreign equity holding, Mutual European Fund - Class Z, trailed the MSCI EAFE Index; however, Templeton Foreign Fund - Advisor Class outperformed. Thank you for your continued participation in Franklin Templeton 2045 Retirement Target Fund. We look forward to serving your future investment needs. (PHOTO OF T. ANTHONY COFFEY) /s/ T. Anthony Coffey T. Anthony Coffey, CFA Portfolio Manager Franklin Templeton 2045 Retirement Target Fund THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2009, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT OUR MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY. THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY, INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED RELIABLE, BUT THE INVESTMENT MANAGER MAKES NO REPRESENTATION OR WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR INVESTMENT MANAGEMENT PHILOSOPHY. Annual Report | 37 Performance Summary as of 12/31/09 FRANKLIN TEMPLETON 2045 RETIREMENT TARGET FUND Your dividend income will vary depending on dividends or interest paid by securities in the Fund's portfolio, adjusted for operating expenses of each class. Capital gain distributions are net profits realized from the sale of portfolio securities. The performance table and graphs do not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares. Total return reflects reinvestment of the Fund's dividends and capital gain distributions, if any, and any unrealized gains or losses. PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: N/A) CHANGE 12/31/09 12/31/08 - --------------------- ------ -------- -------- Net Asset Value (NAV) +$2.24 $9.13 $6.89 DISTRIBUTIONS (1/1/09-12/31/09) Dividend Income $0.0983 Long-Term Capital Gain $0.1448 TOTAL $0.2431
CLASS C (SYMBOL: N/A) CHANGE 12/31/09 12/31/08 - --------------------- ------ -------- -------- Net Asset Value (NAV) +$2.20 $9.01 $6.81 DISTRIBUTIONS (1/1/09-12/31/09) Dividend Income $0.0577 Long-Term Capital Gain $0.1448 TOTAL $0.2025
CLASS R (SYMBOL: N/A) CHANGE 12/31/09 12/31/08 - --------------------- ------ -------- -------- Net Asset Value (NAV) +$2.24 $9.12 $6.88 DISTRIBUTIONS (1/1/09-12/31/09) Dividend Income $0.0887 Long-Term Capital Gain $0.1448 TOTAL $0.2335
ADVISOR CLASS (SYMBOL: N/A) CHANGE 12/31/09 12/31/08 - --------------------------- ------ -------- -------- Net Asset Value (NAV) +$2.27 $9.16 $6.89 DISTRIBUTIONS (1/1/09-12/31/09) Dividend Income $0.1186 Long-Term Capital Gain $0.1448 TOTAL $0.2634
38 | Annual Report Performance Summary (CONTINUED) PERFORMANCE(1) CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURN AND VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 5.75% MAXIMUM INITIAL SALES CHARGE; CLASS C: 1% CONTINGENT DEFERRED SALES CHARGE IN FIRST YEAR ONLY; CLASS R/ADVISOR CLASS: NO SALES CHARGES.
CLASS A 1-YEAR 3-YEAR INCEPTION (8/1/06) - ------- ------- ------ ------------------ Cumulative Total Return(2) +36.53% -4.95% +5.09% Average Annual Total Return(3) +28.69% -3.59% -0.28% Value of $10,000 Investment(4) $12,869 $8,962 $9,905 Total Annual Operating Expenses(5) Without Waiver 3.99% With Waiver 1.32%
CLASS C 1-YEAR 3-YEAR INCEPTION (8/1/06) - ------- ------- ------ ------------------ Cumulative Total Return(2) +35.77% -6.91% +2.68% Average Annual Total Return(3) +34.77% -2.36% +0.78% Value of $10,000 Investment(4) $13,477 $9,309 $10,268 Total Annual Operating Expenses(5) Without Waiver 4.69% With Waiver 2.02%
CLASS R 1-YEAR 3-YEAR INCEPTION (8/1/06) - ------- ------- ------ ------------------ Cumulative Total Return(2) +36.45% -5.44% +4.44% Average Annual Total Return(3) +36.45% -1.85% +1.28% Value of $10,000 Investment(4) $13,645 $9,456 $10,444 Total Annual Operating Expenses(5) Without Waiver 4.19% With Waiver 1.52%
ADVISOR CLASS 1-YEAR 3-YEAR INCEPTION (8/1/06) - ------------- ------- ------ ------------------ Cumulative Total Return(2) +37.27% -4.04% +6.24% Average Annual Total Return(3) +37.27% -1.37% +1.79% Value of $10,000 Investment(4) $13,727 $9,596 $10,624 Total Annual Operating Expenses(5) Without Waiver 3.69% With Waiver 1.02%
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM FIGURES SHOWN. FOR MOST RECENT MONTH-END PERFORMANCE, GO TO franklintempleton.com OR CALL (800) 342-5236. THE INVESTMENT MANAGER HAS CONTRACTUALLY AGREED TO WAIVE OR LIMIT ITS FEES AND TO ASSUME AS ITS OWN EXPENSE CERTAIN EXPENSES OTHERWISE PAYABLE BY THE FUND SO THAT COMMON EXPENSES (I.E., A COMBINATION OF ASSET ALLOCATION FEES AND OTHER EXPENSES, BUT EXCLUDING RULE 12B-1 FEES AND ACQUIRED FUND FEES AND EXPENSES) FOR EACH CLASS OF THE FUND DO NOT EXCEED 0.15% (OTHER THAN CERTAIN NONROUTINE EXPENSES OR COSTS, INCLUDING THOSE RELATING TO LITIGATION, INDEMNIFICATION, REORGANIZA-TIONS AND LIQUIDATIONS) UNTIL 4/30/10. Annual Report | 39 Performance Summary (CONTINUED) TOTAL RETURN INDEX COMPARISON FOR A HYPOTHETICAL $10,000 INVESTMENT(1) Total return represents the change in value of an investment over the periods shown. It includes any applicable maximum sales charge, Fund expenses, account fees and reinvested distributions. The unmanaged indexes include reinvestment of any income or distributions. They differ from the Fund in composition and do not pay management fees or expenses. One cannot invest directly in an index. AVERAGE ANNUAL TOTAL RETURN
CLASS A 12/31/09 - ------- -------- 1-Year +28.69% 3-Year -3.59% Since Inception (8/1/06) -0.28%
CLASS A (8/1/06-12/31/09) (PERFORMANCE GRAPH)
FRANKLIN TEMPLETON PAYDEN & RYGEL 2045 RETIREMENT BARCLAYS CAPITAL U.S. 90-DAY U.S. DATE TARGET FUND - CLASS A S&P 500 INDEX MSCI EAFE INDEX AGGREGATE BOND INDEX TREASURY INDEX - ---------- --------------------- ------------- --------------- --------------------- -------------- 8/1/2006 $ 9,425 $10,000 $10,000 $10,000 $10,000 8/31/2006 $ 9,614 $10,238 $10,278 $10,153 $10,044 9/30/2006 $ 9,632 $10,502 $10,296 $10,242 $10,088 10/31/2006 $ 9,991 $10,844 $10,697 $10,310 $10,127 11/30/2006 $10,311 $11,050 $11,020 $10,430 $10,170 12/31/2006 $10,420 $11,205 $11,366 $10,369 $10,214 1/31/2007 $10,621 $11,375 $11,444 $10,365 $10,256 2/28/2007 $10,563 $11,152 $11,538 $10,525 $10,296 3/31/2007 $10,738 $11,277 $11,838 $10,525 $10,343 4/30/2007 $11,093 $11,776 $12,374 $10,582 $10,387 5/31/2007 $11,456 $12,187 $12,608 $10,502 $10,434 6/30/2007 $11,432 $11,985 $12,627 $10,471 $10,473 7/31/2007 $11,137 $11,613 $12,442 $10,558 $10,513 8/31/2007 $11,245 $11,787 $12,251 $10,687 $10,573 9/30/2007 $11,846 $12,228 $12,909 $10,768 $10,611 10/31/2007 $12,338 $12,423 $13,417 $10,865 $10,644 11/30/2007 $11,668 $11,903 $12,980 $11,060 $10,692 12/31/2007 $11,600 $11,821 $12,688 $11,091 $10,716 1/31/2008 $10,667 $11,112 $11,517 $11,278 $10,771 2/29/2008 $10,617 $10,751 $11,686 $11,293 $10,790 3/31/2008 $10,380 $10,704 $11,569 $11,332 $10,815 4/30/2008 $10,961 $11,226 $12,211 $11,308 $10,826 5/31/2008 $11,302 $11,371 $12,354 $11,225 $10,832 6/30/2008 $10,451 $10,412 $11,346 $11,216 $10,848 7/31/2008 $10,233 $10,325 $10,982 $11,207 $10,869 8/31/2008 $10,264 $10,474 $10,540 $11,314 $10,884 9/30/2008 $ 9,163 $ 9,541 $ 9,020 $11,162 $10,914 10/31/2008 $ 7,470 $ 7,939 $ 7,200 $10,898 $10,931 11/30/2008 $ 7,012 $ 7,369 $ 6,814 $11,253 $10,943 12/31/2008 $ 7,254 $ 7,447 $ 7,225 $11,673 $10,941 1/31/2009 $ 6,865 $ 6,820 $ 6,517 $11,570 $10,940 2/28/2009 $ 6,391 $ 6,094 $ 5,851 $11,526 $10,941 3/31/2009 $ 6,836 $ 6,627 $ 6,224 $11,686 $10,945 4/30/2009 $ 7,542 $ 7,262 $ 7,031 $11,742 $10,948 5/31/2009 $ 8,079 $ 7,668 $ 7,876 $11,827 $10,949 6/30/2009 $ 8,052 $ 7,683 $ 7,833 $11,895 $10,950 7/31/2009 $ 8,675 $ 8,264 $ 8,549 $12,087 $10,952 8/31/2009 $ 8,868 $ 8,562 $ 9,015 $12,212 $10,954 9/30/2009 $ 9,384 $ 8,882 $ 9,362 $12,340 $10,955 10/31/2009 $ 9,190 $ 8,717 $ 9,246 $12,401 $10,958 11/30/2009 $ 9,566 $ 9,240 $ 9,433 $12,561 $10,959 12/31/2009 $ 9,905 $ 9,418 $ 9,570 $12,365 $10,959
AVERAGE ANNUAL TOTAL RETURN
CLASS C 12/31/09 - ------- -------- 1-Year +34.77% 3-Year -2.36% Since Inception (8/1/06) +0.78%
CLASS C (8/1/06-12/31/09) (PERFORMANCE GRAPH)
FRANKLIN TEMPLETON PAYDEN & RYGEL 2045 RETIREMENT BARCLAYS CAPITAL U.S. 90-DAY U.S. DATE TARGET FUND - CLASS C S&P 500 INDEX MSCI EAFE INDEX AGGREGATE BOND INDEX TREASURY INDEX - ---------- --------------------- ------------- --------------- --------------------- -------------- 8/1/2006 $10,000 $10,000 $10,000 $10,000 $10,000 8/31/2006 $10,190 $10,238 $10,278 $10,153 $10,044 9/30/2006 $10,210 $10,502 $10,296 $10,242 $10,088 10/31/2006 $10,590 $10,844 $10,697 $10,310 $10,127 11/30/2006 $10,920 $11,050 $11,020 $10,430 $10,170 12/31/2006 $11,030 $11,205 $11,366 $10,369 $10,214 1/31/2007 $11,243 $11,375 $11,444 $10,365 $10,256 2/28/2007 $11,172 $11,152 $11,538 $10,525 $10,296 3/31/2007 $11,347 $11,277 $11,838 $10,525 $10,343 4/30/2007 $11,723 $11,776 $12,374 $10,582 $10,387 5/31/2007 $12,098 $12,187 $12,608 $10,502 $10,434 6/30/2007 $12,062 $11,985 $12,627 $10,471 $10,473 7/31/2007 $11,749 $11,613 $12,442 $10,558 $10,513 8/31/2007 $11,843 $11,787 $12,251 $10,687 $10,573 9/30/2007 $12,470 $12,228 $12,909 $10,768 $10,611 10/31/2007 $12,992 $12,423 $13,417 $10,865 $10,644 11/30/2007 $12,271 $11,903 $12,980 $11,060 $10,692 12/31/2007 $12,188 $11,821 $12,688 $11,091 $10,716 1/31/2008 $11,211 $11,112 $11,517 $11,278 $10,771 2/29/2008 $11,137 $10,751 $11,686 $11,293 $10,790 3/31/2008 $10,886 $10,704 $11,569 $11,332 $10,815 4/30/2008 $11,502 $11,226 $12,211 $11,308 $10,826 5/31/2008 $11,841 $11,371 $12,354 $11,225 $10,832 6/30/2008 $10,951 $10,412 $11,346 $11,216 $10,848 7/31/2008 $10,719 $10,325 $10,982 $11,207 $10,869 8/31/2008 $10,741 $10,474 $10,540 $11,314 $10,884 9/30/2008 $ 9,575 $ 9,541 $ 9,020 $11,162 $10,914 10/31/2008 $ 7,803 $ 7,939 $ 7,200 $10,898 $10,931 11/30/2008 $ 7,319 $ 7,369 $ 6,814 $11,253 $10,943 12/31/2008 $ 7,562 $ 7,447 $ 7,225 $11,673 $10,941 1/31/2009 $ 7,151 $ 6,820 $ 6,517 $11,570 $10,940 2/28/2009 $ 6,663 $ 6,094 $ 5,851 $11,526 $10,941 3/31/2009 $ 7,121 $ 6,627 $ 6,224 $11,686 $10,945 4/30/2009 $ 7,854 $ 7,262 $ 7,031 $11,742 $10,948 5/31/2009 $ 8,399 $ 7,668 $ 7,876 $11,827 $10,949 6/30/2009 $ 8,371 $ 7,683 $ 7,833 $11,895 $10,950 7/31/2009 $ 9,016 $ 8,264 $ 8,549 $12,087 $10,952 8/31/2009 $ 9,209 $ 8,562 $ 9,015 $12,212 $10,954 9/30/2009 $ 9,741 $ 8,882 $ 9,362 $12,340 $10,955 10/31/2009 $ 9,526 $ 8,717 $ 9,246 $12,401 $10,958 11/30/2009 $ 9,922 $ 9,240 $ 9,433 $12,561 $10,959 12/31/2009 $10,268 $ 9,418 $ 9,570 $12,365 $10,959
40 | Annual Report Performance Summary (CONTINUED) AVERAGE ANNUAL TOTAL RETURN
CLASS R 12/31/09 - ------- -------- 1-Year +36.45% 3-Year -1.85% Since Inception (8/1/06) +1.28%
CLASS R (8/1/06-12/31/09) (PERFORMANCE GRAPH)
FRANKLIN TEMPLETON PAYDEN & RYGEL 2045 RETIREMENT BARCLAYS CAPITAL U.S. 90-DAY U.S. DATE TARGET FUND - CLASS R S&P 500 INDEX MSCI EAFE INDEX AGGREGATE BOND INDEX TREASURY INDEX - ---------- --------------------- ------------- --------------- --------------------- -------------- 8/1/2006 $10,000 $10,000 $10,000 $10,000 $10,000 8/31/2006 $10,200 $10,238 $10,278 $10,153 $10,044 9/30/2006 $10,220 $10,502 $10,296 $10,242 $10,088 10/31/2006 $10,600 $10,844 $10,697 $10,310 $10,127 11/30/2006 $10,940 $11,050 $11,020 $10,430 $10,170 12/31/2006 $11,044 $11,205 $11,366 $10,369 $10,214 1/31/2007 $11,268 $11,375 $11,444 $10,365 $10,256 2/28/2007 $11,207 $11,152 $11,538 $10,525 $10,296 3/31/2007 $11,382 $11,277 $11,838 $10,525 $10,343 4/30/2007 $11,758 $11,776 $12,374 $10,582 $10,387 5/31/2007 $12,144 $12,187 $12,608 $10,502 $10,434 6/30/2007 $12,108 $11,985 $12,627 $10,471 $10,473 7/31/2007 $11,805 $11,613 $12,442 $10,558 $10,513 8/31/2007 $11,909 $11,787 $12,251 $10,687 $10,573 9/30/2007 $12,536 $12,228 $12,909 $10,768 $10,611 10/31/2007 $13,059 $12,423 $13,417 $10,865 $10,644 11/30/2007 $12,359 $11,903 $12,980 $11,060 $10,692 12/31/2007 $12,274 $11,821 $12,688 $11,091 $10,716 1/31/2008 $11,295 $11,112 $11,517 $11,278 $10,771 2/29/2008 $11,231 $10,751 $11,686 $11,293 $10,790 3/31/2008 $10,979 $10,704 $11,569 $11,332 $10,815 4/30/2008 $11,596 $11,226 $12,211 $11,308 $10,826 5/31/2008 $11,958 $11,371 $12,354 $11,225 $10,832 6/30/2008 $11,055 $10,412 $11,346 $11,216 $10,848 7/31/2008 $10,824 $10,325 $10,982 $11,207 $10,869 8/31/2008 $10,846 $10,474 $10,540 $11,314 $10,884 9/30/2008 $ 9,677 $ 9,541 $ 9,020 $11,162 $10,914 10/31/2008 $ 7,892 $ 7,939 $ 7,200 $10,898 $10,931 11/30/2008 $ 7,407 $ 7,369 $ 6,814 $11,253 $10,943 12/31/2008 $ 7,654 $ 7,447 $ 7,225 $11,673 $10,941 1/31/2009 $ 7,242 $ 6,820 $ 6,517 $11,570 $10,940 2/28/2009 $ 6,742 $ 6,094 $ 5,851 $11,526 $10,941 3/31/2009 $ 7,223 $ 6,627 $ 6,224 $11,686 $10,945 4/30/2009 $ 7,958 $ 7,262 $ 7,031 $11,742 $10,948 5/31/2009 $ 8,525 $ 7,668 $ 7,876 $11,827 $10,949 6/30/2009 $ 8,497 $ 7,683 $ 7,833 $11,895 $10,950 7/31/2009 $ 9,144 $ 8,264 $ 8,549 $12,087 $10,952 8/31/2009 $ 9,359 $ 8,562 $ 9,015 $12,212 $10,954 9/30/2009 $ 9,893 $ 8,882 $ 9,362 $12,340 $10,955 10/31/2009 $ 9,688 $ 8,717 $ 9,246 $12,401 $10,958 11/30/2009 $10,086 $ 9,240 $ 9,433 $12,561 $10,959 12/31/2009 $10,444 $ 9,418 $ 9,570 $12,365 $10,959
AVERAGE ANNUAL TOTAL RETURN
ADVISOR CLASS 12/31/09 - ------------- -------- 1-Year +37.27% 3-Year -1.37% Since Inception (8/1/06) +1.79%
ADVISOR CLASS (8/1/06-12/31/09) (PERFORMANCE GRAPH)
FRANKLIN TEMPLETON 2045 RETIREMENT BARCLAYS CAPITAL U.S. PAYDEN & RYGEL 90-DAY DATE TARGET FUND - ADVISOR CLASS S&P 500 INDEX MSCI EAFE INDEX AGGREGATE BOND INDEX U.S. TREASURY INDEX - ---------- --------------------------- ------------- --------------- --------------------- --------------------- 8/1/2006 $10,000 $10,000 $10,000 $10,000 $10,000 8/31/2006 $10,200 $10,238 $10,278 $10,153 $10,044 9/30/2006 $10,230 $10,502 $10,296 $10,242 $10,088 10/31/2006 $10,610 $10,844 $10,697 $10,310 $10,127 11/30/2006 $10,960 $11,050 $11,020 $10,430 $10,170 12/31/2006 $11,072 $11,205 $11,366 $10,369 $10,214 1/31/2007 $11,285 $11,375 $11,444 $10,365 $10,256 2/28/2007 $11,235 $11,152 $11,538 $10,525 $10,296 3/31/2007 $11,420 $11,277 $11,838 $10,525 $10,343 4/30/2007 $11,796 $11,776 $12,374 $10,582 $10,387 5/31/2007 $12,193 $12,187 $12,608 $10,502 $10,434 6/30/2007 $12,167 $11,985 $12,627 $10,471 $10,473 7/31/2007 $11,864 $11,613 $12,442 $10,558 $10,513 8/31/2007 $11,968 $11,787 $12,251 $10,687 $10,573 9/30/2007 $12,606 $12,228 $12,909 $10,768 $10,611 10/31/2007 $13,139 $12,423 $13,417 $10,865 $10,644 11/30/2007 $12,439 $11,903 $12,980 $11,060 $10,692 12/31/2007 $12,362 $11,821 $12,688 $11,091 $10,716 1/31/2008 $11,370 $11,112 $11,517 $11,278 $10,771 2/29/2008 $11,317 $10,751 $11,686 $11,293 $10,790 3/31/2008 $11,064 $10,704 $11,569 $11,332 $10,815 4/30/2008 $11,694 $11,226 $12,211 $11,308 $10,826 5/31/2008 $12,057 $11,371 $12,354 $11,225 $10,832 6/30/2008 $11,162 $10,412 $11,346 $11,216 $10,848 7/31/2008 $10,930 $10,325 $10,982 $11,207 $10,869 8/31/2008 $10,963 $10,474 $10,540 $11,314 $10,884 9/30/2008 $ 9,780 $ 9,541 $ 9,020 $11,162 $10,914 10/31/2008 $ 7,979 $ 7,939 $ 7,200 $10,898 $10,931 11/30/2008 $ 7,482 $ 7,369 $ 6,814 $11,253 $10,943 12/31/2008 $ 7,740 $ 7,447 $ 7,225 $11,673 $10,941 1/31/2009 $ 7,324 $ 6,820 $ 6,517 $11,570 $10,940 2/28/2009 $ 6,830 $ 6,094 $ 5,851 $11,526 $10,941 3/31/2009 $ 7,305 $ 6,627 $ 6,224 $11,686 $10,945 4/30/2009 $ 8,058 $ 7,262 $ 7,031 $11,742 $10,948 5/31/2009 $ 8,642 $ 7,668 $ 7,876 $11,827 $10,949 6/30/2009 $ 8,625 $ 7,683 $ 7,833 $11,895 $10,950 7/31/2009 $ 9,289 $ 8,264 $ 8,549 $12,087 $10,952 8/31/2009 $ 9,495 $ 8,562 $ 9,015 $12,212 $10,954 9/30/2009 $10,057 $ 8,882 $ 9,362 $12,340 $10,955 10/31/2009 $ 9,851 $ 8,717 $ 9,246 $12,401 $10,958 11/30/2009 $10,251 $ 9,240 $ 9,433 $12,561 $10,959 12/31/2009 $10,624 $ 9,418 $ 9,570 $12,365 $10,959
Annual Report | 41 Performance Summary (CONTINUED) ENDNOTES WHILE AN ASSET ALLOCATION PLAN CAN BE A VALUABLE TOOL TO HELP REDUCE OVERALL VOLATILITY, ALL INVESTMENTS INVOLVE SOME DEGREE OF RISK. GENERALLY, INVESTORS SHOULD BE COMFORTABLE WITH FLUCTUATION IN THE VALUE OF THEIR INVESTMENTS, ESPECIALLY OVER THE SHORT TERM. STOCKS HAVE HISTORICALLY OUTPERFORMED OTHER ASSET CLASSES OVER THE LONG TERM, BUT THEY TEND TO FLUCTUATE MORE DRAMATICALLY OVER THE SHORTER TERM. BOND PRICES GENERALLY MOVE IN THE OPPOSITE DIRECTION OF INTEREST RATES. THUS, AS PRICES OF BONDS IN THE FUND ADJUST TO A RISE IN INTEREST RATES, THE FUND'S SHARE PRICE MAY DECLINE. BECAUSE THE FUND INVESTS IN UNDERLYING FUNDS, WHICH MAY ENGAGE IN A VARIETY OF INVESTMENT STRATEGIES INVOLVING CERTAIN RISKS, THE FUND MAY BE SUBJECT TO THOSE SAME RISKS. THESE RISKS ARE DESCRIBED IN THE FUND'S PROSPECTUS. CLASS C: These shares have higher annual fees and expenses than Class A shares. CLASS R: Shares are available to certain eligible investors as described in the prospectus. These shares have higher annual fees and expenses than Class A shares. ADVISOR CLASS: Shares are available to certain eligible investors as described in the prospectus. (1.) If the manager had not waived fees, the Fund's total returns would have been lower. (2.) Cumulative total return represents the change in value of an investment over the periods indicated. (3.) Average annual total return represents the average annual change in value of an investment over the periods indicated. (4.) These figures represent the value of a hypothetical $10,000 investment in the Fund over the periods indicated. (5.) Figures are as stated in the Fund's prospectus current as of the date of this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses to become higher than the figures shown. (6.) Source: (c) 2009 Morningstar. See page 36 for descriptions of the S&P 500, the MSCI EAFE Index, the BC U.S. Aggregate Index and the P&R 90 Day U.S. T-Bill Index. 42 | Annual Report Your Fund's Expenses FRANKLIN TEMPLETON 2045 RETIREMENT TARGET FUND As a Fund shareholder, you can incur two types of costs: - - Transaction costs, including sales charges (loads) on Fund purchases; and - - Ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses. The following table shows ongoing costs of investing in the Fund and can help you understand these costs and compare them with those of other mutual funds. The table assumes a $1,000 investment held for the six months indicated. ACTUAL FUND EXPENSES The first line (Actual) for each share class listed in the table provides actual account values and expenses. The "Ending Account Value" is derived from the Fund's actual return, which includes the effect of Fund expenses. You can estimate the expenses you paid during the period by following these steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS ILLUSTRATION: 1. Divide your account value by $1,000. IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6. 2. Multiply the result by the number under the heading "Expenses Paid During Period." IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50. In this illustration, the estimated expenses paid this period are $64.50. HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS Information in the second line (Hypothetical) for each class in the table can help you compare ongoing costs of investing in the Fund with those of other mutual funds. This information may not be used to estimate the actual ending account balance or expenses you paid during the period. The hypothetical "Ending Account Value" is based on the actual expense ratio for each class and an assumed 5% annual rate of return before expenses, which does not represent the Fund's actual return. The figure under the heading "Expenses Paid During Period" shows the hypothetical expenses your account would have incurred under this scenario. You can compare this figure with the 5% hypothetical examples that appear in shareholder reports of other funds. Annual Report | 43 Your Fund's Expenses (CONTINUED) PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES. Therefore, the second line for each class is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transaction costs were included, your total costs would have been higher. Please refer to the Fund prospectus for additional information on operating expenses.
BEGINNING ENDING EXPENSES PAID EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* DURING PERIOD** 7/1/09 12/31/09 7/1/09-12/31/09 7/1/09-12/31/09 ------------- ------------- --------------- --------------- CLASS A Actual $1,000 $1,230.00 $2.53 $ 7.81 Hypothetical (5% return before expenses) $1,000 $1,022.94 $2.29 $ 7.07 CLASS C Actual $1,000 $1,226.60 $6.45 $11.73 Hypothetical (5% return before expenses) $1,000 $1,019.41 $5.85 $10.61 CLASS R Actual $1,000 $1,229.10 $3.65 $ 8.93 Hypothetical (5% return before expenses) $1,000 $1,021.93 $3.31 $ 8.08 ADVISOR CLASS Actual $1,000 $1,231.80 $0.84 $ 6.13 Hypothetical (5% return before expenses) $1,000 $1,024.45 $0.77 $ 5.55
* Expenses are calculated using the most recent six-month expense ratio excluding expenses of the underlying funds, net of expense waivers, annualized for each class (A: 0.45%; C: 1.15%; R: 0.65%; and Advisor: 0.15%), multiplied by the average account value over the period, multiplied by 184/365 to reflect the one-half year period. A portion of the Fund's expenses have been paid by the underlying funds in which the Fund invests. ** Expenses are calculated using the most recent six-month expense ratio including expenses of the underlying funds, net of expense waivers, annualized for each class (A: 1.39%; C: 2.09%; R: 1.59%; and Advisor: 1.09%), multiplied by the average account value over the period, multiplied by 184/365 to reflect the one-half year period. A portion of the Fund's expenses have been paid by the underlying funds in which the Fund invests. 44 | Annual Report Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS FRANKLIN TEMPLETON 2015 RETIREMENT TARGET FUND
YEAR ENDED DECEMBER 31, -------------------------------------- 2009 2008 2007 2006(a) ------- ------- ------ ------- CLASS A PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year ..................... $ 8.14 $ 11.35 $10.69 $10.00 ------- ------- ------ ------ Income from investment operations(b): Net investment income(c, d) ......................... 0.19 0.23 0.33 0.13 Net realized and unrealized gains (losses) .......... 2.09 (3.08) 0.72 0.73 ------- ------- ------ ------ Total from investment operations ....................... 2.28 (2.85) 1.05 0.86 ------- ------- ------ ------ Less distributions from: Net investment income and short term gains received from Underlying Funds ................... (0.20) (0.19) (0.23) (0.15) Net realized gains .................................. (0.05) (0.17) (0.16) (0.02) ------- ------- ------ ------ Total distributions .................................... (0.25) (0.36) (0.39) (0.17) ------- ------- ------ ------ Redemption fees(e) ..................................... -- --(f) --(f) -- ------- ------- ------ ------ Net asset value, end of year ........................... $ 10.17 $ 8.14 $11.35 $10.69 ======= ======= ====== ====== Total return(g) ........................................ 28.50% (25.55)% 9.84% 8.59% RATIOS TO AVERAGE NET ASSETS(h) Expenses before waiver and payments by affiliates(i) ... 1.00% 1.36% 3.60% 12.13% Expenses net of waiver and payments by affiliates(i) ... 0.46% 0.51% 0.48% 0.50% Net investment income(d) ............................... 2.11% 2.25% 3.11% 2.92% SUPPLEMENTAL DATA Net assets, end of year (000's) ........................ $17,108 $ 9,407 $5,269 $1,364 Portfolio turnover rate ................................ 12.19% 8.69% 8.19% 2.42%
(a) For the period August 1, 2006 (commencement of operations) to December 31, 2006. (b) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (c) Based on average daily shares outstanding. (d) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (e) Effective September 1, 2008, the redemption fee was eliminated. (f) Amount rounds to less than $0.01 per share. (g) Total return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year. (h) Ratios are annualized for periods less than one year. (i) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.82% for the year ended December 31, 2009. The accompanying notes are an integral part of these financial statements. Annual Report | 45 Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN TEMPLETON 2015 RETIREMENT TARGET FUND
YEAR ENDED DECEMBER 31, ------------------------------------- 2009 2008 2007 2006(a) ------ ------- ------ ------- CLASS C PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year ..................... $ 8.08 $ 11.28 $10.67 $10.00 ------ ------- ------ ------ Income from investment operations(b): Net investment income(c, d) ......................... 0.13 0.14 0.36 0.14 Net realized and unrealized gains (losses) .......... 2.09 (3.04) 0.60 0.69 ------ ------- ------ ------ Total from investment operations ....................... 2.22 (2.90) 0.96 0.83 ------ ------- ------ ------ Less distributions from: Net investment income and short term gains received from Underlying Funds ............................ (0.15) (0.13) (0.19) (0.14) Net realized gains .................................. (0.05) (0.17) (0.16) (0.02) ------ ------- ------ ------ Total distributions .................................... (0.20) (0.30) (0.35) (0.16) ------ ------- ------ ------ Redemption fees(e) ..................................... -- --(f) --(f) -- ------ ------- ------ ------ Net asset value, end of year ........................... $10.10 $ 8.08 $11.28 $10.67 ====== ======= ====== ====== Total return(g) ........................................ 27.75% (26.09)% 9.02% 8.30% RATIOS TO AVERAGE NET ASSETS(h) Expenses before waiver and payments by affiliates(i) ... 1.70% 2.04% 4.28% 12.78% Expenses net of waiver and payments by affiliates(i) ... 1.16% 1.19% 1.16% 1.15% Net investment income(d) ............................... 1.41% 1.57% 2.43% 2.27% SUPPLEMENTAL DATA Net assets, end of year (000's) ........................ $8,357 $ 4,621 $2,213 $ 63 Portfolio turnover rate ................................ 12.19% 8.69% 8.19% 2.42%
(a) For the period August 1, 2006 (commencement of operations) to December 31, 2006. (b) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (c) Based on average daily shares outstanding. (d) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (e) Effective September 1, 2008, the redemption fee was eliminated. (f) Amount rounds to less than $0.01 per share. (g) Total return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year. (h) Ratios are annualized for periods less than one year. (i) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.82% for the year ended December 31, 2009. The accompanying notes are an integral part of these financial statements. 46 | Annual Report Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN TEMPLETON 2015 RETIREMENT TARGET FUND
YEAR ENDED DECEMBER 31, ------------------------------------- 2009 2008 2007 2006(a) ------ ------- ------ ------- CLASS R PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year ..................... $ 8.12 $ 11.32 $10.68 $10.00 ------ ------- ------ ------ Income from investment operations(b): Net investment income(c, d) ......................... 0.16 0.18 0.34 0.11 Net realized and unrealized gains (losses) .......... 2.11 (3.05) 0.68 0.74 ------ ------- ------ ------ Total from investment operations ....................... 2.27 (2.87) 1.02 0.85 ------ ------- ------ ------ Less distributions from: Net investment income and short term gains received from Underlying Funds ............................ (0.19) (0.16) (0.22) (0.15) Net realized gains .................................. (0.05) (0.17) (0.16) (0.02) ------ ------- ------ ------ Total distributions .................................... (0.24) (0.33) (0.38) (0.17) ------ ------- ------ ------ Redemption fees(e) ..................................... -- --(f) --(f) -- ------ ------- ------ ------ Net asset value, end of year ........................... $10.15 $ 8.12 $11.32 $10.68 ====== ======= ====== ====== Total return(g) ........................................ 28.32% (25.70)% 9.59% 8.48% RATIOS TO AVERAGE NET ASSETS(h) Expenses before waiver and payments by affiliates(i) ... 1.20% 1.56% 3.78% 12.28% Expenses net of waiver and payments by affiliates(i) ... 0.66% 0.71% 0.66% 0.65% Net investment income(d) ............................... 1.91% 2.05% 2.93% 2.77% SUPPLEMENTAL DATA Net assets, end of year (000's) ........................ $1,365 $ 821 $1,071 $ 11 Portfolio turnover rate ................................ 12.19% 8.69% 8.19% 2.42%
(a) For the period August 1, 2006 (commencement of operations) to December 31, 2006. (b) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (c) Based on average daily shares outstanding. (d) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (e) Effective September 1, 2008, the redemption fee was eliminated. (f) Amount rounds to less than $0.01 per share. (g) Total return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year. (h) Ratios are annualized for periods less than one year. (i) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.82% for the year ended December 31, 2009. The accompanying notes are an integral part of these financial statements. Annual Report | 47 Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN TEMPLETON 2015 RETIREMENT TARGET FUND
YEAR ENDED DECEMBER 31, ------------------------------------ ADVISOR CLASS 2009 2008 2007 2006(a) - ------------- ------ ------- ------ ------ PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year ...................... $ 8.15 $ 11.37 $10.70 $10.00 ------ ------- ------ ------ Income from investment operations(b): Net investment income(c, d) .......................... 0.20 0.25 0.30 0.17 Net realized and unrealized gains (losses) ........... 2.12 (3.09) 0.79 0.71 ------ ------- ------ ------ Total from investment operations ........................ 2.32 (2.84) 1.09 0.88 ------ ------- ------ ------ Less distributions from: Net investment income and short term gains received from Underlying Funds ............................. (0.23) (0.21) (0.26) (0.16) Net realized gains ................................... (0.05) (0.17) (0.16) (0.02) ------ ------- ------ ------ Total distributions ..................................... (0.28) (0.38) (0.42) (0.18) ------ ------- ------ ------ Redemption fees(e) ...................................... -- --(f) --(f) -- ------ ------- ------ ------ Net asset value, end of year ............................ $10.19 $ 8.15 $11.37 $10.70 ====== ======= ====== ====== Total return(g) ......................................... 28.94% (25.39)% 10.21% 8.75% RATIOS TO AVERAGE NET ASSETS(h) Expenses before waiver and payments by affiliates(i) .... 0.70% 1.06% 3.28% 11.78% Expenses net of waiver and payments by affiliates(i) .... 0.16% 0.21% 0.16% 0.15% Net investment income(d) ................................ 2.41% 2.55% 3.43% 3.27% SUPPLEMENTAL DATA Net assets, end of year (000's) ......................... $ 199 $ 164 $ 32 $ 20 Portfolio turnover rate ................................. 12.19% 8.69% 8.19% 2.42%
(a) For the period August 1, 2006 (commencement of operations) to December 31, 2006. (b) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (c) Based on average daily shares outstanding. (d) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (e) Effective September 1, 2008, the redemption fee was eliminated. (f) Amount rounds to less than $0.01 per share. (g) Total return is not annualized for periods less than one year. (h) Ratios are annualized for periods less than one year. (i) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.82% for the year ended December 31, 2009. The accompanying notes are an integral part of these financial statements. 48 | Annual Report Franklin Templeton Fund Allocator Series STATEMENT OF INVESTMENTS, DECEMBER 31, 2009
FRANKLIN TEMPLETON 2015 RETIREMENT TARGET FUND SHARES VALUE ---------------------------------------------- --------- ----------- INVESTMENTS IN UNDERLYING FUNDS(a) DOMESTIC EQUITY 45.6% (b) Franklin Flex Cap Growth Fund, Advisor Class ......................... 107,905 $ 4,529,870 (b) Franklin Growth Opportunities Fund, Advisor Class .................... 95,947 1,821,076 Franklin MicroCap Value Fund, Advisor Class .......................... 29,179 787,840 Franklin Natural Resources Fund, Advisor Class ....................... 25,250 831,224 (b) Franklin Small Cap Growth Fund, Advisor Class ........................ 87,518 790,289 Franklin Utilities Fund, Advisor Class ............................... 49,862 565,427 Mutual Shares Fund, Class Z .......................................... 156,583 3,004,834 ----------- 12,330,560 ----------- DOMESTIC FIXED INCOME 15.5% Franklin Total Return Fund, Advisor Class ............................ 191,306 1,838,449 Franklin U.S. Government Securities Fund, Advisor Class .............. 354,137 2,358,555 ----------- 4,197,004 ----------- FOREIGN EQUITY 20.8% Franklin Gold and Precious Metals Fund, Advisor Class ................ 23,638 973,871 Mutual European Fund, Class Z ........................................ 96,468 1,966,986 Templeton China World Fund, Advisor Class ............................ 27,261 935,859 Templeton Foreign Fund, Advisor Class ................................ 269,012 1,743,196 ----------- 5,619,912 ----------- FOREIGN FIXED INCOME 9.6% Franklin Templeton Emerging Market Debt Opportunities Fund ........... 27,175 297,571 Templeton Global Bond Fund, Advisor Class ............................ 180,808 2,294,451 ----------- 2,592,022 ----------- TOTAL INVESTMENTS IN UNDERLYING FUNDS BEFORE SHORT TERM INVESTMENTS (COST $23,964,540) 91.5% ......................................... 24,739,498 ----------- SHORT TERM INVESTMENTS (COST $2,260,932) 8.4% MONEY MARKET FUNDS 8.4% (c) Institutional Fiduciary Trust Money Market Portfolio, 0.00% .......... 2,260,932 2,260,932 ----------- TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $26,225,472) 99.9% ....... 27,000,430 OTHER ASSETS, LESS LIABILITIES 0.1% .................................. 28,458 ----------- NET ASSETS 100.0% .................................................... $27,028,888 ===========
(a) See Note 6 regarding investments in Underlying Funds. (b) Non-income producing. (c) The rate shown is the annualized seven-day yield at period end. The accompanying notes are an integral part of these financial statements. Annual Report | 49 Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS FRANKLIN TEMPLETON 2025 RETIREMENT TARGET FUND
YEAR ENDED DECEMBER 31, -------------------------------------- CLASS A 2009 2008 2007 2006(a) - ------- ------- ------- ------ ------ PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year ...................... $ 7.47 $ 11.45 $10.78 $10.00 ------- ------- ------ ------ Income from investment operations(b): Net investment income(c, d) .......................... 0.16 0.14 0.28 0.12 Net realized and unrealized gains (losses) ........... 2.15 (3.71) 0.82 0.82 ------- ------- ------ ------ Total from investment operations ........................ 2.31 (3.57) 1.10 0.94 ------- ------- ------ ------ Less distributions from: Net investment income and short term gains received from Underlying Funds ............................. (0.14) (0.14) (0.21) (0.14) Net realized gains ................................... (0.10) (0.27) (0.22) (0.02) ------- ------- ------ ------ Total distributions ..................................... (0.24) (0.41) (0.43) (0.16) ------- ------- ------ ------ Redemption fees(e) ...................................... -- --(f) --(f) --(f) ------- ------- ------ ------ Net asset value, end of year ............................ $ 9.54 $ 7.47 $11.45 $10.78 ======= ======= ====== ====== Total return(g) ......................................... 31.34% (31.74)% 10.19% 9.41% RATIOS TO AVERAGE NET ASSETS(h) Expenses before waiver and payments by affiliates(i) .... 1.09% 1.50% 3.31% 10.76% Expenses net of waiver and payments by affiliates(i) .... 0.46% 0.49% 0.47% 0.50% Net investment income(d) ................................ 1.88% 1.53% 2.55% 2.78% SUPPLEMENTAL DATA Net assets, end of year (000's) ......................... $19,725 $ 9,918 $6,952 $1,699 Portfolio turnover rate ................................. 13.43% 6.07% 16.28% 5.36%
(a) For the period August 1, 2006 (commencement of operations) to December 31, 2006. (b) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (c) Based on average daily shares outstanding. (d) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (e) Effective September 1, 2008, the redemption fee was eliminated. (f) Amount rounds to less than $0.01 per share. (g) Total return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year. (h) Ratios are annualized for periods less than one year. (i) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.86% for the year ended December 31, 2009. The accompanying notes are an integral part of these financial statements. 50 | Annual Report Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN TEMPLETON 2025 RETIREMENT TARGET FUND
YEAR ENDED DECEMBER 31, ------------------------------------- CLASS C 2009 2008 2007 2006(a) - ------- ------ ------- ------ ------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year .................... $ 7.43 $ 11.40 $10.77 $10.00 ------ ------- ------ ------ Income from investment operations(b): Net investment income(c, d) ........................ 0.10 0.10 0.28 0.10 Net realized and unrealized gains (losses) ......... 2.12 (3.70) 0.74 0.82 ------ ------- ------ ------ Total from investment operations ...................... 2.22 (3.60) 1.02 0.92 ------ ------- ------ ------ Less distributions from: Net investment income and short term gains received from Underlying Funds .................. (0.10) (0.10) (0.17) (0.13) Net realized gains ................................. (0.10) (0.27) (0.22) (0.02) ------ ------- ------ ------ Total distributions ................................... (0.20) (0.37) (0.39) (0.15) ------ ------- ------ ------ Redemption fees(e) .................................... -- --(f) --(f) --(f) ------ ------- ------ ------ Net asset value, end of year .......................... $ 9.45 $ 7.43 $11.40 $10.77 ====== ======= ====== ====== Total return(g) ....................................... 30.18% (32.16)% 9.43% 9.20% RATIOS TO AVERAGE NET ASSETS(h) Expenses before waiver and payments by affiliates(i) .. 1.79% 2.20% 3.99% 11.41% Expenses net of waiver and payments by affiliates(i) .. 1.16% 1.19% 1.15% 1.15% Net investment income(d) .............................. 1.18% 0.83% 1.87% 2.13% SUPPLEMENTAL DATA Net assets, end of year (000's) ....................... $6,308 $ 2,551 $1,104 $ 54 Portfolio turnover rate ............................... 13.43% 6.07% 16.28% 5.36%
(a) For the period August 1, 2006 (commencement of operations) to December 31, 2006. (b) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (c) Based on average daily shares outstanding. (d) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (e) Effective September 1, 2008, the redemption fee was eliminated. (f) Amount rounds to less than $0.01 per share. (g) Total return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year. (h) Ratios are annualized for periods less than one year. (i) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.86% for the year ended December 31, 2009. The accompanying notes are an integral part of these financial statements. Annual Report | 51 Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN TEMPLETON 2025 RETIREMENT TARGET FUND
YEAR ENDED DECEMBER 31, ------------------------------------- CLASS R 2009 2008 2007 2006(a) - ------- ------ ------- ------ ------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year ...................... $ 7.47 $ 11.44 $10.77 $10.00 ------ ------- ------ ------ Income from investment operations(b): Net investment income(c, d) .......................... 0.17 0.10 0.27 0.11 Net realized and unrealized gains (losses) ........... 2.12 (3.68) 0.82 0.82 ------ ------- ------ ------ Total from investment operations ........................ 2.29 (3.58) 1.09 0.93 ------ ------- ------ ------ Less distributions from: Net investment income and short term gains received from Underlying Funds ............................. (0.13) (0.12) (0.20) (0.14) Net realized gains ................................... (0.10) (0.27) (0.22) (0.02) ------ ------- ------ ------ Total distributions ..................................... (0.23) (0.39) (0.42) (0.16) ------ ------- ------ ------ Redemption fees(e) ...................................... -- --(f) --(f) --(f) ------ ------- ------ ------ Net asset value, end of year ............................ $ 9.53 $ 7.47 $11.44 $10.77 ====== ======= ====== ====== Total return(g) ......................................... 31.03% (31.90)% 10.11% 9.31% RATIOS TO AVERAGE NET ASSETS(h) Expenses before waiver and payments by affiliates(i) .... 1.29% 1.70% 3.49% 10.91% Expenses net of waiver and payments by affiliates(i) .... 0.66% 0.69% 0.65% 0.65% Net investment income(d) ................................ 1.68% 1.33% 2.37% 2.63% SUPPLEMENTAL DATA Net assets, end of year (000's) ......................... $ 460 $ 155 $ 188 $ 19 Portfolio turnover rate ................................. 13.43% 6.07% 16.28% 5.36%
(a) For the period August 1, 2006 (commencement of operations) to December 31, 2006. (b) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (c) Based on average daily shares outstanding. (d) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (e) Effective September 1, 2008, the redemption fee was eliminated. (f) Amount rounds to less than $0.01 per share. (g) Total return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year. (h) Ratios are annualized for periods less than one year. (i) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.86% for the year ended December 31, 2009. The accompanying notes are an integral part of these financial statements. 52 | Annual Report Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN TEMPLETON 2025 RETIREMENT TARGET FUND
YEAR ENDED DECEMBER 31, ------------------------------------- ADVISOR CLASS 2009 2008 2007 2006(a) - ------------- ------ ------- ------ -------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year ...................... $ 7.48 $ 11.46 $10.79 $10.00 ------ ------- ------ ------ Income from investment operations(b): Net investment income(c, d) .......................... 0.17 0.16 0.46 0.20 Net realized and unrealized gains (losses) ........... 2.17 (3.70) 0.67 0.76 ------ ------- ------ ------ Total from investment operations ........................ 2.34 (3.54) 1.13 0.96 ------ ------- ------ ------ Less distributions from: Net investment income and short term gains received from Underlying Funds ............................. (0.17) (0.17) (0.24) (0.15) Net realized gains ................................... (0.10) (0.27) (0.22) (0.02) ------ ------- ------ ------ Total distributions ..................................... (0.27) (0.44) (0.46) (0.17) ------ ------- ------ ------ Redemption fees(e) ...................................... -- --(f) --(f) --(f) ------ ------- ------ ------ Net asset value, end of year ............................ $ 9.55 $ 7.48 $11.46 $10.79 ====== ======= ====== ====== Total return(g) ......................................... 31.61% (31.49)% 10.46% 9.57% RATIOS TO AVERAGE NET ASSETS(h) Expenses before waiver and payments by affiliates(i) .... 0.79% 1.20% 2.99% 10.41% Expenses net of waiver and payments by affiliates(i) .... 0.16% 0.19% 0.15% 0.15% Net investment income(d) ................................ 2.18% 1.83% 2.87% 3.13% SUPPLEMENTAL DATA Net assets, end of year (000's) ......................... $ 463 $ 322 $ 417 $ 51 Portfolio turnover rate ................................. 13.43% 6.07% 16.28% 5.36%
(a) For the period August 1, 2006 (commencement of operations) to December 31, 2006. (b) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (c) Based on average daily shares outstanding. (d) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (e) Effective September 1, 2008, the redemption fee was eliminated. (f) Amount rounds to less than $0.01 per share. (g) Total return is not annualized for periods less than one year. (h) Ratios are annualized for periods less than one year. (i) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.86% for the year ended December 31, 2009. The accompanying notes are an integral part of these financial statements. Annual Report | 53 Franklin Templeton Fund Allocator Series STATEMENT OF INVESTMENTS, DECEMBER 31, 2009
FRANKLIN TEMPLETON 2025 RETIREMENT TARGET FUND SHARES VALUE ---------------------------------------------- --------- ----------- INVESTMENTS IN UNDERLYING FUNDS(a) DOMESTIC EQUITY 55.5% (b) Franklin Flex Cap Growth Fund, Advisor Class ............................ 130,274 $ 5,468,908 (b) Franklin Growth Opportunities Fund, Advisor Class ....................... 118,845 2,255,684 Franklin MicroCap Value Fund, Advisor Class ............................. 34,960 943,923 Franklin Natural Resources Fund, Advisor Class .......................... 30,500 1,004,061 (b) Franklin Small Cap Growth Fund, Advisor Class ........................... 102,689 927,278 Franklin Utilities Fund, Advisor Class .................................. 59,015 669,232 Mutual Shares Fund, Class Z ............................................. 192,383 3,691,830 ----------- 14,960,916 ----------- DOMESTIC FIXED INCOME 9.3% Franklin Total Return Fund, Advisor Class ............................... 114,516 1,100,503 Franklin U.S. Government Securities Fund, Advisor Class ................. 211,990 1,411,855 ----------- 2,512,358 ----------- FOREIGN EQUITY 24.7% Franklin Gold and Precious Metals Fund, Advisor Class ................... 27,969 1,152,314 Mutual European Fund, Class Z ........................................... 117,957 2,405,143 Templeton China World Fund, Advisor Class ............................... 31,798 1,091,628 Templeton Foreign Fund, Advisor Class ................................... 306,985 1,989,262 ----------- 6,638,347 ----------- FOREIGN FIXED INCOME 5.6% Franklin Templeton Emerging Market Debt Opportunities Fund .............. 15,233 166,805 Templeton Global Bond Fund, Advisor Class ............................... 106,328 1,349,302 ----------- 1,516,107 ----------- TOTAL INVESTMENTS IN UNDERLYING FUNDS BEFORE SHORT TERM INVESTMENTS (COST $24,525,580) 95.1% ............................................. 25,627,728 ----------- SHORT TERM INVESTMENTS (COST $1,224,271) 4.5% MONEY MARKET FUNDS 4.5% (c) Institutional Fiduciary Trust Money Market Portfolio, 0.00% ............. 1,224,271 1,224,271 ----------- TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $25,749,851) 99.6% .......... 26,851,999 OTHER ASSETS, LESS LIABILITIES 0.4% ..................................... 103,037 ----------- NET ASSETS 100.0% ....................................................... $26,955,036 ===========
(a) See Note 6 regarding investments in Underlying Funds. (b) Non-income producing. (c) The rate shown is the annualized seven-day yield at period end. The accompanying notes are an integral part of these financial statements. 54 | Annual Report Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS FRANKLIN TEMPLETON 2035 RETIREMENT TARGET FUND
YEAR ENDED DECEMBER 31, -------------------------------------- CLASS A 2009 2008 2007 2006(a) - ------- ------- ------ ------ ------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year ............................................. $ 7.12 $11.61 $10.88 $10.00 ------- ------ ------ ------ Income from investment operations(b): Net investment income(c, d) ................................................. 0.13 0.08 0.22 0.09 Net realized and unrealized gains (losses) .................................. 2.34 (4.16) 0.97 0.95 ------- ------ ------ ------ Total from investment operations ............................................... 2.47 (4.08) 1.19 1.04 ------- ------ ------ ------ Less distributions from: Net investment income and short term gains received from Underlying Funds ... (0.13) (0.09) (0.16) (0.13) Net realized gains .......................................................... (0.10) (0.32) (0.30) (0.03) ------- ------ ------ ------ Total distributions ............................................................ (0.23) (0.41) (0.46) (0.16) ------- ------ ------ ------ Redemption fees(e) ............................................................. -- --(f) --(f) -- ------- ------ ------ ------ Net asset value, end of year ................................................... $ 9.36 $ 7.12 $11.61 $10.88 ======= ====== ====== ====== Total return(g) ................................................................ 35.04% (35.97)% 11.05% 10.44% RATIOS TO AVERAGE NET ASSETS(h) Expenses before waiver and payments by affiliates(i) ........................... 1.51% 2.14% 5.16% 13.47% Expenses net of waiver and payments by affiliates(i) ........................... 0.45% 0.49% 0.48% 0.50% Net investment income(d) ....................................................... 1.65% 0.87% 2.07% 2.04% SUPPLEMENTAL DATA Net assets, end of year (000's) ................................................ $10,391 $5,349 $3,760 $1,171 Portfolio turnover rate ........................................................ 19.76% 7.54% 14.95% 8.29%
(a) For the period August 1, 2006 (commencement of operations) to December 31, 2006. (b) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (c) Based on average daily shares outstanding. (d) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (e) Effective September 1, 2008, the redemption fee was eliminated. (f) Amount rounds to less than $0.01 per share. (g) Total return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year. (h) Ratios are annualized for periods less than one year. (i) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.92% for the year ended December 31, 2009. The accompanying notes are an integral part of these financial statements. Annual Report | 55 Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN TEMPLETON 2035 RETIREMENT TARGET FUND
YEAR ENDED DECEMBER 31, -------------------------------------- CLASS C 2009 2008 2007 2006(a) - ------- ------ ------- ------- ------ PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year ............................................. $ 7.06 11.52 $ 10.86 $10.00 ------ ------- ------- ------ Income from investment operations(b): Net investment income(c, d) ................................................. 0.09 0.03 0.26 0.12 Net realized and unrealized gains (losses) .................................. 2.28 (4.13) 0.84 0.89 ------ ------- ------- ------ Total from investment operations ............................................... 2.37 (4.10) 1.10 1.01 ------ ------- ------- ------ Less distributions from: Net investment income and short term gains received from Underlying Funds ... (0.08) (0.04) (0.14) (0.12) Net realized gains .......................................................... (0.10) (0.32) (0.30) (0.03) ------ ------- ------- ------ Total distributions ............................................................ (0.18) (0.36) (0.44) (0.15) ------ ------- ------- ------ Redemption fees(e) ............................................................. -- --(f) --(f) -- ------ ------- ------- ------ Net asset value, end of year ................................................... $ 9.25 $ 7.06 $ 11.52 $10.86 ====== ======= ======= ====== Total return(g) ................................................................ 34.00% (36.34)% 10.12% 10.14% RATIOS TO AVERAGE NET ASSETS(h) Expenses before waiver and payments by affiliates(i) ........................... 2.21% 2.84% 5.84% 14.12% Expenses net of waiver and payments by affiliates(i) ........................... 1.15% 1.19% 1.16% 1.15% Net investment income(d) ....................................................... 0.95% 0.17% 1.39% 1.39% SUPPLEMENTAL DATA Net assets, end of year (000's) ................................................ $3,980 $ 1,522 $ 1,103 $ 57 Portfolio turnover rate ........................................................ 19.76% 7.54% 14.95% 8.29%
(a) For the period August 1, 2006 (commencement of operations) to December 31, 2006. (b) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (c) Based on average daily shares outstanding. (d) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (e) Effective September 1, 2008, the redemption fee was eliminated. (f) Amount rounds to less than $0.01 per share. (g) Total return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year. (h) Ratios are annualized for periods less than one year. (i) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.92% for the year ended December 31, 2009. The accompanying notes are an integral part of these financial statements. 56 | Annual Report Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN TEMPLETON 2035 RETIREMENT TARGET FUND
YEAR ENDED DECEMBER 31, --------------------------------------- 2009 2008 2007 2006(a) ------ ------- ------ ------- CLASS R PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year ..................... $ 7.13 $ 11.59 $10.88 $10.00 ------ ------- ------ ------ Income from investment operations(b): Net investment income(c, d) ......................... 0.12 0.03 0.28 0.11 Net realized and unrealized gains (losses) .......... 2.33 (4.12) 0.89 0.93 ------ ------- ------ ------ Total from investment operations ....................... 2.45 (4.09) 1.17 1.04 ------ ------- ------ ------ Less distributions from: Net investment income and short term gains received from Underlying Funds ............. (0.11) (0.05) (0.16) (0.13) Net realized gains .................................. (0.10) (0.32) (0.30) (0.03) ------ ------- ------ ------ Total distributions .................................... (0.21) (0.37) (0.46) (0.16) ------ ------- ------ ------ Redemption fees(e) ..................................... -- --(f) --(f) -- ------ ------- ------ ------ Net asset value, end of year ........................... $ 9.37 $ 7.13 $11.59 $10.88 ====== ======= ====== ====== Total return(g) ........................................ 34.79% (36.05)% 10.76% 10.40% RATIOS TO AVERAGE NET ASSETS(h) Expenses before waiver and payments by affiliates(i) ... 1.71% 2.34% 5.34% 13.62% Expenses net of waiver and payments by affiliates(i) ... 0.65% 0.69% 0.66% 0.65% Net investment income(d) ............................... 1.45% 0.67% 1.89% 1.89% SUPPLEMENTAL DATA Net assets, end of year (000's) ........................ $ 368 $ 172 $ 314 $ 23 Portfolio turnover rate ................................ 19.76% 7.54% 14.95% 8.29%
(a) For the period August 1, 2006 (commencement of operations) to December 31, 2006. (b) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (c) Based on average daily shares outstanding. (d) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (e) Effective September 1, 2008, the redemption fee was eliminated. (f) Amount rounds to less than $0.01 per share. (g) Total return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year. (h) Ratios are annualized for periods less than one year. (i) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.92% for the year ended December 31, 2009. The accompanying notes are an integral part of these financial statements. Annual Report | 57 Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN TEMPLETON 2035 RETIREMENT TARGET FUND
YEAR ENDED DECEMBER 31, --------------------------------------- 2009 2008 2007 2006(a) ------ ------- ------ ------- ADVISOR CLASS PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year ..................... $ 7.14 $ 11.64 $10.89 $10.00 ------ ------- ------ ------ Income from investment operations(b): Net investment income(c, d) ......................... 0.16 0.11 0.20 0.18 Net realized and unrealized gains (losses) .......... 2.34 (4.18) 1.04 0.88 ------ ------- ------ ------ Total from investment operations ....................... 2.50 (4.07) 1.24 1.06 ------ ------- ------ ------ Less distributions from: Net investment income and short term gains received from Underlying Funds ................... (0.15) (0.11) (0.19) (0.14) Net realized gains .................................. (0.10) (0.32) (0.30) (0.03) ------ ------- ------ ------ Total distributions .................................... (0.25) (0.43) (0.49) (0.17) ------ ------- ------ ------ Redemption fees(e) ..................................... -- --(f) --(f) -- ------ ------- ------ ------ Net asset value, end of year ........................... $ 9.39 $ 7.14 $11.64 $10.89 ====== ======= ====== ====== Total return(g) ........................................ 35.42% (35.72)% 11.34% 10.60% RATIOS TO AVERAGE NET ASSETS(h) Expenses before waiver and payments by affiliates(i) ... 1.21% 1.84% 4.84% 13.12% Expenses net of waiver and payments by affiliates(i) ... 0.15% 0.19% 0.16% 0.15% Net investment income(d) ............................... 1.95% 1.17% 2.39% 2.39% SUPPLEMENTAL DATA Net assets, end of year (000's) ........................ $ 493 $ 213 $ 119 $ 59 Portfolio turnover rate ................................ 19.76% 7.54% 14.95% 8.29%
(a) For the period August 1, 2006 (commencement of operations) to December 31, 2006. (b) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (c) Based on average daily shares outstanding. (d) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (e) Effective September 1, 2008, the redemption fee was eliminated. (f) Amount rounds to less than $0.01 per share. (g) Total return is not annualized for periods less than one year. (h) Ratios are annualized for periods less than one year. (i) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.92% for the year ended December 31, 2009. The accompanying notes are an integral part of these financial statements. 58 | Annual Report Franklin Templeton Fund Allocator Series STATEMENT OF INVESTMENTS, DECEMBER 31, 2009
FRANKLIN TEMPLETON 2035 RETIREMENT TARGET FUND SHARES VALUE ---------------------------------------------- ------- ----------- INVESTMENTS IN UNDERLYING FUNDS(a) DOMESTIC EQUITY 66.0% (b) Franklin Flex Cap Growth Fund, Advisor Class ...................... 85,142 $ 3,574,246 (b) Franklin Growth Opportunities Fund, Advisor Class ................. 78,802 1,495,658 Franklin MicroCap Value Fund, Advisor Class ....................... 23,821 643,169 Franklin Natural Resources Fund, Advisor Class .................... 20,531 675,884 (b) Franklin Small Cap Growth Fund, Advisor Class ..................... 70,935 640,542 Franklin Utilities Fund, Advisor Class ............................ 39,288 445,533 Mutual Shares Fund, Class Z ....................................... 133,972 2,570,914 ----------- 10,045,946 ----------- DOMESTIC FIXED INCOME 2.3% Franklin Total Return Fund, Advisor Class ......................... 16,421 157,809 Franklin U.S. Government Securities Fund, Advisor Class ........... 29,287 195,049 ----------- 352,858 ----------- FOREIGN EQUITY 29.4% Franklin Gold and Precious Metals Fund, Advisor Class ............. 20,056 826,321 Mutual European Fund, Class Z ..................................... 78,279 1,596,105 Templeton China World Fund, Advisor Class ......................... 21,238 729,096 Templeton Foreign Fund, Advisor Class ............................. 205,752 1,333,270 ----------- 4,484,792 ----------- FOREIGN FIXED INCOME 1.5% Franklin Templeton Emerging Market Debt Opportunities Fund ........ 2,328 25,488 Templeton Global Bond Fund, Advisor Class ......................... 15,874 201,438 ----------- 226,926 ----------- TOTAL INVESTMENTS IN UNDERLYING FUNDS BEFORE SHORT TERM INVESTMENTS (COST $14,162,670) 99.2% ....................................... 15,110,522 ----------- SHORT TERM INVESTMENTS (COST $85,862) 0.6% MONEY MARKET FUNDS 0.6% (c) Institutional Fiduciary Trust Money Market Portfolio, 0.00% ....... 85,862 85,862 ----------- TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $14,248,532) 99.8% .... 15,196,384 OTHER ASSETS, LESS LIABILITIES 0.2% ............................... 35,098 ----------- NET ASSETS 100.0% ................................................. $15,231,482 ===========
(a) See Note 6 regarding investments in Underlying Funds. (b) Non-income producing. (c) The rate shown is the annualized seven-day yield at period end. The accompanying notes are an integral part of these financial statements. Annual Report | 59 Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS FRANKLIN TEMPLETON 2045 RETIREMENT TARGET FUND
YEAR ENDED DECEMBER 31, ------------------------------------- 2009 2008 2007 2006(a) ------ ------- ------ ------- CLASS A PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year ................. $ 6.89 $ 11.57 $10.89 $10.00 ------ ------- ------ ------ Income from investment operations(b): Net investment income(c, d) ..................... 0.12 0.06 0.17 0.08 Net realized and unrealized gains (losses) ...... 2.36 (4.29) 1.06 0.97 ------ ------- ------ ------ Total from investment operations ................... 2.48 (4.23) 1.23 1.05 ------ ------- ------ ------ Less distributions from: Net investment income and short term gains received from Underlying Funds ............... (0.10) (0.08) (0.16) (0.13) Net realized gains .............................. (0.14) (0.37) (0.39) (0.03) ------ ------- ------ ------ Total distributions ................................ (0.24) (0.45) (0.55) (0.16) ------ ------- ------ ------ Redemption fees(e) ................................. -- --(f) --(f) -- ------ ------- ------ ------ Net asset value, end of year ....................... $ 9.13 $ 6.89 $11.57 $10.89 ====== ======= ====== ====== Total return(g) .................................... 36.53% (37.46)% 11.32% 10.55% RATIOS TO AVERAGE NET ASSETS(h) Expenses before waiver and payments by affiliates(i) 2.03% 3.12% 6.86% 13.15% Expenses net of waiver and payments by affiliates(i) 0.45% 0.47% 0.47% 0.50% Net investment income(d) ........................... 1.53% 0.66% 1.70% 1.97% SUPPLEMENTAL DATA Net assets, end of year (000's) .................... $6,943 $ 3,389 $2,439 $1,169 Portfolio turnover rate ............................ 14.30% 8.09% 24.40% 8.01%
(a) For the period August 1, 2006 (commencement of operations) to December 31, 2006. (b) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (c) Based on average daily shares outstanding. (d) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (e) Effective September 1, 2008, the redemption fee was eliminated. (f) Amount rounds to less than $0.01 per share. (g) Total return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year. (h) Ratios are annualized for periods less than one year. (i) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.94% for the year ended December 31, 2009. The accompanying notes are an integral part of these financial statements. 60 | Annual Report Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN TEMPLETON 2045 RETIREMENT TARGET FUND
YEAR ENDED DECEMBER 31, ------------------------------------- 2009 2008 2007 2006(a) ------ ------- ------ ------- CLASS C PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year ................. $ 6.81 $ 11.48 $10.87 $10.00 ------ ------- ------ ------ Income from investment operations(b): Net investment income(c, d) ..................... 0.07 0.02 0.23 0.16 Net realized and unrealized gains (losses) ...... 2.33 (4.27) 0.91 0.87 ------ ------- ------ ------ Total from investment operations ................... 2.40 (4.25) 1.14 1.03 ------ ------- ------ ------ Less distributions from: Net investment income and short term gains received from Underlying Funds ............... (0.06) (0.05) (0.14) (0.13) Net realized gains .............................. (0.14) (0.37) (0.39) (0.03) ------ ------- ------ ------ Total distributions ................................ (0.20) (0.42) (0.53) (0.16) ------ ------- ------ ------ Redemption fees(e) ................................. -- --(f) --(f) -- ------ ------- ------ ------ Net asset value, end of year ....................... $ 9.01 $ 6.81 $11.48 $10.87 ====== ======= ====== ====== Total return(g) .................................... 35.77% (37.95)% 10.50% 10.30% RATIOS TO AVERAGE NET ASSETS(h) Expenses before waiver and payments by affiliates(i) 2.73% 3.82% 7.55% 13.74% Expenses net of waiver and payments by affiliates(i) 1.15% 1.17% 1.16% 1.09% Net investment income (loss)(d) .................... 0.83% (0.04)% 1.01% 1.38% SUPPLEMENTAL DATA Net assets, end of year (000's) .................... $2,264 $ 958 $ 487 $ 67 Portfolio turnover rate ............................ 14.30% 8.09% 24.40% 8.01%
(a) For the period August 1, 2006 (commencement of operations) to December 31, 2006. (b) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (c) Based on average daily shares outstanding. (d) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (e) Effective September 1, 2008, the redemption fee was eliminated. (f) Amount rounds to less than $0.01 per share. (g) Total return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year. (h) Ratios are annualized for periods less than one year. (i) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.94% for the year ended December 31, 2009. The accompanying notes are an integral part of these financial statements. Annual Report | 61 Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN TEMPLETON 2045 RETIREMENT TARGET FUND
YEAR ENDED DECEMBER 31, ------------------------------------- 2009 2008 2007 2006(a) ------ ------- ------ ------- CLASS R PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year ................. $ 6.88 $ 11.54 $10.88 $10.00 ------ ------- ------ ------ Income from investment operations(b): Net investment income(c, d) ..................... 0.12 0.02 0.24 0.08 Net realized and unrealized gains (losses) ...... 2.35 (4.25) 0.97 0.96 ------ ------- ------ ------ Total from investment operations ................... 2.47 (4.23) 1.21 1.04 ------ ------- ------ ------ Less distributions from: Net investment income and short term gains received from Underlying Funds ............... (0.09) (0.06) (0.16) (0.13) Net realized gains .............................. (0.14) (0.37) (0.39) (0.03) ------ ------- ------ ------ Total distributions ................................ (0.23) (0.43) (0.55) (0.16) ------ ------- ------ ------ Redemption fees(e) ................................. -- --(f) --(f) -- ------ ------- ------ ------ Net asset value, end of year ....................... $ 9.12 $ 6.88 $11.54 $10.88 ====== ======= ====== ====== Total return(g) .................................... 36.45% (37.64)% 11.13% 10.44% RATIOS TO AVERAGE NET ASSETS(h) Expenses before waiver and payments by affiliates(i) ................................... 2.23% 3.32% 7.04% 13.30% Expenses net of waiver and payments by affiliates(i) ................................... 0.65% 0.67% 0.65% 0.65% Net investment income(d) ........................... 1.33% 0.46% 1.52% 1.82% SUPPLEMENTAL DATA Net assets, end of year (000's) .................... $ 394 $ 156 $ 160 $ 12 Portfolio turnover rate ............................ 14.30% 8.09% 24.40% 8.01%
(a) For the period August 1, 2006 (commencement of operations) to December 31, 2006. (b) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (c) Based on average daily shares outstanding. (d) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (e) Effective September 1, 2008, the redemption fee was eliminated. (f) Amount rounds to less than $0.01 per share. (g) Total return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year. (h) Ratios are annualized for periods less than one year. (i) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.94% for the year ended December 31, 2009. The accompanying notes are an integral part of these financial statements. 62 | Annual Report Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN TEMPLETON 2045 RETIREMENT TARGET FUND
YEAR ENDED DECEMBER 31, ------------------------------------- 2009 2008 2007 2006(a) ------ ------- ------ ------- ADVISOR CLASS PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year ................. $ 6.89 $ 11.59 $10.90 $10.00 ------ ------- ------ ------ Income from investment operations(b): Net investment income(c, d) ..................... 0.14 0.06 0.49 0.12 Net realized and unrealized gains (losses) ...... 2.39 (4.29) 0.78 0.95 ------ ------- ------ ------ Total from investment operations ................... 2.53 (4.23) 1.27 1.07 ------ ------- ------ ------ Less distributions from: Net investment income and short term gains received from Underlying Funds .............. (0.12) (0.10) (0.19) (0.14) Net realized gains .............................. (0.14) (0.37) (0.39) (0.03) ------ ------- ------ ------ Total distributions ................................ (0.26) (0.47) (0.58) (0.17) ------ ------- ------ ------ Redemption fees(e) ................................. -- --(f) --(f) -- ------ ------- ------ ------ Net asset value, end of year ....................... $ 9.16 $ 6.89 $11.59 $10.90 ====== ======= ====== ====== Total return(g) .................................... 37.27% (37.39)% 11.65% 10.72% RATIOS TO AVERAGE NET ASSETS(h) Expenses before waiver and payments by affiliates(i) 1.73% 2.82% 6.54% 12.80% Expenses net of waiver and payments by affiliates(i) 0.15% 0.17% 0.15% 0.15% Net investment income(d) ........................... 1.83% 0.96% 2.02% 2.32% SUPPLEMENTAL DATA Net assets, end of year (000's) .................... $ 205 $ 105 $ 164 $ 17 Portfolio turnover rate ............................ 14.30% 8.09% 24.40% 8.01%
(a) For the period August 1, 2006 (commencement of operations) to December 31, 2006. (b) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (c) Based on average daily shares outstanding. (d) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (e) Effective September 1, 2008, the redemption fee was eliminated. (f) Amount rounds to less than $0.01 per share. (g) Total return is not annualized for periods less than one year. (h) Ratios are annualized for periods less than one year. (i) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.94% for the year ended December 31, 2009. The accompanying notes are an integral part of these financial statements. Annual Report | 63 Franklin Templeton Fund Allocator Series STATEMENT OF INVESTMENTS, DECEMBER 31, 2009
FRANKLIN TEMPLETON 2045 RETIREMENT TARGET FUND SHARES VALUE - ---------------------------------------------- ------- ---------- INVESTMENTS IN UNDERLYING FUNDS(a) DOMESTIC EQUITY 67.7% (b) Franklin Flex Cap Growth Fund, Advisor Class .................. 56,378 $2,366,747 (b) Franklin Growth Opportunities Fund, Advisor Class ............. 53,650 1,018,282 Franklin MicroCap Value Fund, Advisor Class ................... 15,943 430,473 Franklin Natural Resources Fund, Advisor Class ................ 14,056 462,726 (b) Franklin Small Cap Growth Fund, Advisor Class ................. 47,738 431,076 Franklin Utilities Fund, Advisor Class ........................ 26,477 300,249 Mutual Shares Fund, Class Z ................................... 84,990 1,630,965 ---------- 6,640,518 ---------- FOREIGN EQUITY 30.6% Franklin Gold and Precious Metals Fund, Advisor Class ......... 13,313 548,499 Mutual European Fund, Class Z ................................. 52,621 1,072,935 Templeton China World Fund, Advisor Class ..................... 14,485 497,263 Templeton Foreign Fund, Advisor Class ......................... 136,474 884,349 ---------- 3,003,046 ---------- TOTAL INVESTMENTS IN UNDERLYING FUNDS BEFORE SHORT TERM INVESTMENTS (COST $9,034,440) 98.3% ................... 9,643,564 ---------- SHORT TERM INVESTMENTS (COST $18,744) 0.2% MONEY MARKET FUNDS 0.2% (c) Institutional Fiduciary Trust Money Market Portfolio, 0.00% ... 18,744 18,744 ---------- TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $9,053,184) 98.5% 9,662,308 OTHER ASSETS, LESS LIABILITIES 1.5% ........................... 143,957 ---------- NET ASSETS 100.0% ............................................. $9,806,265 ==========
(a) See Note 6 regarding investments in Underlying Funds. (b) Non-income producing. (c) The rate shown is the annualized seven-day yield at period end. The accompanying notes are an integral part of these financial statements. 64 | Annual Report Franklin Templeton Fund Allocator Series FINANCIAL STATEMENTS STATEMENTS OF ASSETS AND LIABILITIES December 31, 2009
FRANKLIN FRANKLIN FRANKLIN FRANKLIN TEMPLETON TEMPLETON TEMPLETON TEMPLETON 2015 2025 2035 2045 RETIREMENT RETIREMENT RETIREMENT RETIREMENT TARGET FUND TARGET FUND TARGET FUND TARGET FUND ----------- ----------- ----------- ----------- Assets: Investments in Underlying Funds: (Note 6) Cost ....................................... $26,225,472 $25,749,851 $14,248,532 $9,053,184 ----------- ----------- ----------- ---------- Value ...................................... $27,000,430 $26,851,999 $15,196,384 $9,662,308 Receivables: Capital shares sold ........................ 32,742 102,028 27,184 89,881 Affiliates ................................. 35,014 53,393 74,270 81,356 Underlying Funds (Note 7) .................. 5,402 5,362 3,686 2,109 ----------- ----------- ----------- ---------- Total assets ............................ 27,073,588 27,012,782 15,301,524 9,835,654 ----------- ----------- ----------- ---------- Liabilities: Payables: Capital shares redeemed .................... 15,923 27,187 42,544 4,004 Reports to shareholders .................... 6,180 6,900 4,839 3,626 Professional fees .......................... 19,245 19,232 19,088 19,051 Unaffiliated transfer agent fees ........... 3,279 4,363 3,538 2,691 Accrued expenses and other liabilities ........ 73 64 33 17 ----------- ----------- ----------- ---------- Total liabilities ....................... 44,700 57,746 70,042 29,389 ----------- ----------- ----------- ---------- Net assets, at value .................... $27,028,888 $26,955,036 $15,231,482 $9,806,265 ----------- ----------- ----------- ---------- Net assets consist of: Paid-in capital ............................... $27,429,817 $27,311,895 $15,381,878 $9,872,634 Undistributed net investment income ........... 9,528 9,517 5,829 4,856 Net unrealized appreciation (depreciation) .... 774,958 1,102,148 947,852 609,124 Accumulated net realized gain (loss) .......... (1,185,415) (1,468,524) (1,104,077) (680,349) ----------- ----------- ----------- ---------- Net assets, at value .................... $27,028,888 $26,955,036 $15,231,482 $9,806,265 =========== =========== =========== ==========
The accompanying notes are an integral part of these financial statements. Annual Report | 65 Franklin Templeton Fund Allocator Series FINANCIAL STATEMENTS (CONTINUED) STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED) December 31, 2009
FRANKLIN FRANKLIN FRANKLIN FRANKLIN TEMPLETON TEMPLETON TEMPLETON TEMPLETON 2015 2025 2035 2045 RETIREMENT RETIREMENT RETIREMENT RETIREMENT TARGET FUND TARGET FUND TARGET FUND TARGET FUND ----------- ----------- ----------- ----------- CLASS A: Net assets, at value ...................... $17,107,644 $19,724,875 $10,391,029 $6,943,256 ----------- ----------- ----------- ---------- Shares outstanding ........................ 1,682,322 2,067,597 1,110,301 760,313 ----------- ----------- ----------- ---------- Net asset value per share(a) .............. $ 10.17 $ 9.54 $ 9.36 $ 9.13 ----------- ----------- ----------- ---------- Maximum offering price per share (net asset value per share / 94.25%) .............. $ 10.79 $ 10.12 $ 9.93 $ 9.69 ----------- ----------- ----------- ---------- CLASS C: Net assets, at value ...................... $ 8,357,298 $ 6,307,692 $ 3,979,532 $2,264,040 ----------- ----------- ----------- ---------- Shares outstanding ........................ 827,859 667,269 430,036 251,346 ----------- ----------- ----------- ---------- Net asset value and maximum offering price per share(a) ........................... $ 10.10 $ 9.45 $ 9.25 $ 9.01 ----------- ----------- ----------- ---------- CLASS R: Net assets, at value ...................... $ 1,365,278 $ 459,654 $ 367,795 $ 394,137 ----------- ----------- ----------- ---------- Shares outstanding ........................ 134,574 48,244 39,260 43,231 ----------- ----------- ----------- ---------- Net asset value and maximum offering price per share .............................. $ 10.15 $ 9.53 $ 9.37 $ 9.12 ----------- ----------- ----------- ---------- ADVISOR CLASS: Net assets, at value ...................... $ 198,668 $ 462,815 $ 493,126 $ 204,832 ----------- ----------- ----------- ---------- Shares outstanding ........................ 19,491 48,465 52,508 22,369 ----------- ----------- ----------- ---------- Net asset value and maximum offering price per share .............................. $ 10.19 $ 9.55 $ 9.39 $ 9.16 ----------- ----------- ----------- ----------
(a) Redemption price is equal to net asset value less contingent deferred sales charges, if applicable. The accompanying notes are an integral part of these financial statements. 66 | Annual Report Franklin Templeton Fund Allocator Series FINANCIAL STATEMENTS (CONTINUED) STATEMENTS OF OPERATIONS for the year ended December 31, 2009
FRANKLIN FRANKLIN FRANKLIN FRANKLIN TEMPLETON TEMPLETON TEMPLETON TEMPLETON 2015 2025 2035 2045 RETIREMENT RETIREMENT RETIREMENT RETIREMENT TARGET FUND TARGET FUND TARGET FUND TARGET FUND ----------- ----------- ----------- ----------- Investment income: Dividends from Underlying Funds (Note 6) ...... $ 496,896 $ 441,759 $ 231,274 $ 135,037 ----------- ----------- ---------- ----------- Expenses: Asset allocation fees (Note 3a) ............... 44,982 45,073 26,938 16,851 Distribution fees: (Note 3c) Class A .................................... 37,420 42,555 23,359 14,742 Class C .................................... 55,737 41,211 25,749 14,999 Class R .................................... 5,504 1,219 1,312 1,251 Transfer agent fees (Note 3e) ................. 34,168 47,383 42,225 37,306 Reports to shareholders ....................... 16,343 16,887 13,074 10,193 Registration and filing fees .................. 49,362 52,321 48,953 47,897 Professional fees ............................. 22,940 22,876 23,111 22,874 Trustees' fees and expenses ................... 102 87 49 31 Other ......................................... 5,090 5,143 4,841 1,014 Expenses borne by Underlying Funds (Note 7) ... (38,371) (39,352) (26,842) (18,247) ----------- ----------- ---------- ----------- Total expenses .......................... 233,277 235,403 182,769 148,911 Expenses waived/paid by affiliates (Note 3f) ............................ (104,104) (120,824) (115,386) (107,701) ----------- ----------- ---------- ----------- Net expenses ......................... 129,173 114,579 67,383 41,210 ----------- ----------- ---------- ----------- Net investment income ............. 367,723 327,180 163,891 93,827 ----------- ----------- ---------- ----------- Realized and unrealized gains (losses): Net realized gain (loss) from: Sale of investments in Underlying Funds .... (1,075,435) (1,216,954) (933,927) (528,790) Realized gain distributions by Underlying Funds ........................ 20,007 23,467 16,099 10,920 ----------- ----------- ---------- ----------- Net realized gain (loss) .......... (1,055,428) (1,193,487) (917,828) (517,870) ----------- ----------- ---------- ----------- Net change in unrealized appreciation (depreciation) on investments in Underlying Funds ........................... 5,507,987 6,412,582 4,326,510 2,732,571 ----------- ----------- ---------- ----------- Net realized and unrealized gain (loss) .......... 4,452,559 5,219,095 3,408,682 2,214,701 ----------- ----------- ---------- ----------- Net increase (decrease) in net assets resulting from operations ..................... $ 4,820,282 $ 5,546,275 $3,572,573 $ 2,308,528 =========== =========== ========== ===========
The accompanying notes are an integral part of these financial statements. Annual Report | 67 Franklin Templeton Fund Allocator Series FINANCIAL STATEMENTS (CONTINUED) STATEMENTS OF CHANGES IN NET ASSETS
FRANKLIN TEMPLETON 2015 FRANKLIN TEMPLETON 2025 RETIREMENT TARGET FUND RETIREMENT TARGET FUND ------------------------- ------------------------- YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, ------------------------- ------------------------- 2009 2008 2009 2008 ----------- ----------- ----------- ----------- Increase (decrease) in net assets: Operations: Net investment income ................................. $ 367,723 $ 295,731 $ 327,180 $ 182,034 Net realized gain (loss) from Underlying Funds ........ (1,055,428) 41,856 (1,193,487) 46,702 Net change in unrealized appreciation (depreciation) on investments in Underlying Funds ................. 5,507,987 (4,633,652) 6,412,582 (5,148,508) ----------- ----------- ----------- ----------- Net increase (decrease) in net assets resulting from operations ................................. 4,820,282 (4,296,065) 5,546,275 (4,919,772) ----------- ----------- ----------- ----------- Distributions to shareholders from: Net investment income and short term gains received from Underlying Funds: Class A ............................................ (301,796) (191,755) (275,272) (181,018) Class C ............................................ (102,126) (71,295) (59,521) (32,675) Class R ............................................ (23,917) (16,886) (5,009) (2,414) Advisor Class ...................................... (4,523) (3,962) (7,912) (6,999) Net realized gains: Class A ............................................ (72,395) (143,847) (173,634) (293,606) Class C ............................................ (29,231) (107,235) (49,256) (51,093) Class R ............................................ (6,384) (18,739) (2,250) (6,089) Advisor Class ...................................... (1,070) (3,513) (4,568) (12,457) ----------- ----------- ----------- ----------- Total distributions to shareholders ...................... (541,442) (557,232) (577,422) (586,351) ----------- ----------- ----------- ----------- Capital share transactions: (Note 2) Class A ............................................ 4,872,295 7,039,466 6,070,768 7,272,636 Class C ............................................ 2,581,320 3,984,119 2,685,980 2,382,415 Class R ............................................ 289,851 72,378 246,752 49,941 Advisor Class ...................................... (6,375) 184,187 35,275 86,251 ----------- ----------- ----------- ----------- Total capital share transactions ......................... 7,737,091 11,280,150 9,038,775 9,791,243 ----------- ----------- ----------- ----------- Redemption fees .......................................... -- 112 -- 253 ----------- ----------- ----------- ----------- Net increase (decrease) in net assets .............. 12,015,931 6,426,965 14,007,628 4,285,373 Net assets: Beginning of year ..................................... 15,012,957 8,585,992 12,947,408 8,662,035 ----------- ----------- ----------- ----------- End of year ........................................... $27,028,888 $15,012,957 $26,955,036 $12,947,408 ----------- ----------- ----------- ----------- Undistributed net investment income included in net assets: End of year ........................................... $ 9,528 $ 70,075 $ 9,517 $ 25,469 =========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements. 68 | Annual Report Franklin Templeton Fund Allocator Series FINANCIAL STATEMENTS (CONTINUED) STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FRANKLIN TEMPLETON 2035 FRANKLIN TEMPLETON 2045 RETIREMENT TARGET FUND RETIREMENT TARGET FUND ------------------------- ------------------------- YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, ------------------------- ------------------------- 2009 2008 2009 2008 ----------- ----------- ----------- ----------- Increase (decrease) in net assets: Operations: Net investment income ................................. $ 163,891 $ 53,049 $ 93,827 $ 23,744 Net realized gain (loss) from Underlying Funds ........ (917,828) 2,648 (517,870) 12,489 Net change in unrealized appreciation (depreciation) on investments in Underlying Funds .................... 4,326,510 (3,303,139) 2,732,571 (2,122,749) ----------- ----------- ---------- ----------- Net increase (decrease) in net assets resulting from operations ................................. 3,572,573 (3,247,442) 2,308,528 (2,086,516) ----------- ----------- ---------- ----------- Distributions to shareholders from: Net investment income and short term gains received from Underlying Funds: Class A ............................................ (134,526) (63,814) (72,815) (40,147) Class C ............................................ (32,842) (9,049) (14,103) (7,185) Class R ............................................ (4,111) (1,220) (3,748) (1,248) Advisor Class ...................................... (7,347) (3,175) (2,603) (1,555) Net realized gains: Class A ............................................ (96,221) (183,268) (92,604) (124,622) Class C ............................................ (31,557) (45,620) (27,915) (27,951) Class R ............................................ (3,334) (10,162) (3,857) (10,661) Advisor Class ...................................... (4,682) (8,438) (2,631) (6,679) ----------- ----------- ---------- ----------- Total distributions to shareholders ......................... (314,620) (324,746) (220,276) (220,048) ----------- ----------- ---------- ----------- Capital share transactions: (Note 2) Class A ............................................ 2,728,858 4,203,952 2,047,175 2,708,547 Class C ............................................ 1,692,983 1,141,684 846,696 841,350 Class R ............................................ 117,031 (16,717) 157,405 99,956 Advisor Class ...................................... 178,125 203,645 59,416 14,472 ----------- ----------- ---------- ----------- Total capital share transactions ............................ 4,716,997 5,532,564 3,110,692 3,664,325 ----------- ----------- ---------- ----------- Redemption fees ............................................. -- 105 -- 68 ----------- ----------- ---------- ----------- Net increase (decrease) in net assets ........... 7,974,950 1,960,481 5,198,944 1,357,829 Net assets: Beginning of year ........................................ 7,256,532 5,296,051 4,607,321 3,249,492 ----------- ----------- ---------- ----------- End of year .............................................. $15,231,482 $ 7,256,532 $9,806,265 $ 4,607,321 ----------- ----------- ---------- ----------- Undistributed net investment income included in net assets: End of year .............................................. $ 5,829 $ 17,383 $ 4,856 $ 1,970 =========== =========== ========== ===========
The accompanying notes are an integral part of these financial statements. Annual Report | 69 Franklin Templeton Fund Allocator Series NOTES TO FINANCIAL STATEMENTS 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Franklin Templeton Fund Allocator Series (Trust) is registered under the Investment Company Act of 1940, as amended, (1940 Act) as an open-end investment company, consisting of ten separate funds, four of which are included in this report (Funds). The financial statements of the remaining funds in the Trust are presented separately. The Funds invest primarily in Franklin Templeton mutual funds (Underlying Funds). The Funds offer four classes of shares: Class A, Class C, Class R, and Advisor Class. Each class of shares differs by its initial sales load, contingent deferred sales charges, distribution fees, voting rights on matters affecting a single class and its exchange privilege. The following summarizes the Funds' significant accounting policies. A. SECURITY VALUATION Net asset value per share is calculated as of the close of trading of the NYSE. Investments in the Underlying Funds are valued at their closing net asset value each trading day. B. INCOME TAXES No provision has been made for U.S. income taxes because it is each fund's policy to qualify as a regulated investment company under the Internal Revenue Code and to distribute to shareholders substantially all of its taxable income and net realized gains. The Funds have reviewed the tax positions, taken on federal income tax returns, for each of the three open tax years and as of December 31, 2009, and have determined that no provision for income tax is required in the Funds' financial statements. C. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS Security transactions are accounted for on trade date. Realized gains and losses on security transactions are determined on a specific identification basis. Estimated expenses are accrued daily. Dividend income and realized gain distributions by Underlying Funds are recorded on the ex-dividend date. Distributions to shareholders are recorded on the ex-dividend date and are determined according to income tax regulations (tax basis). Distributable earnings determined on a tax basis may differ from earnings recorded in accordance with accounting principles generally accepted in the United States of America. These differences may be permanent or temporary. Permanent differences are reclassified among capital accounts to reflect their tax character. These reclassifications have no impact on net assets or the results of operations. Temporary differences are not reclassified, as they may reverse in subsequent periods. 70 | Annual Report Franklin Templeton Fund Allocator Series NOTES TO FINANCIAL STATEMENTS (CONTINUED) 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) C. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS (CONTINUED) Common expenses incurred by the Trust are allocated among the funds based on the ratio of net assets of each fund to the combined net assets of the Trust. Fund specific expenses are charged directly to the fund that incurred the expense. The Funds indirectly bear their proportionate share of expenses from the Underlying Funds. Since the Underlying Funds have varied expense levels and the Funds may own different proportions of the Underlying Funds at different times, the amount of expenses incurred indirectly by the Funds will vary. Realized and unrealized gains and losses and net investment income, not including class specific expenses, are allocated daily to each class of shares based upon the relative proportion of net assets of each class. Differences in per share distributions, by class, are generally due to differences in class specific expenses. D. ACCOUNTING ESTIMATES The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the amounts of income and expenses during the reporting period. Actual results could differ from those estimates. E. REDEMPTION FEES A short term trading redemption fee was imposed, with some exceptions, on any fund shares that were redeemed or exchanged within seven calendar days following their purchase date. The redemption fee was 2% of the amount redeemed. Such fees were retained by the funds and accounted for as an addition to paid-in capital. Effective September 1, 2008, the redemption fee was eliminated. F. GUARANTEES AND INDEMNIFICATIONS Under the Trust's organizational documents, its officers and trustees are indemnified by the Trust against certain liabilities arising out of the performance of their duties to the Trust. Additionally, in the normal course of business, the Trust, on behalf of the Funds enters into contracts with service providers that contain general indemnification clauses. The Trust's maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Trust that have not yet occurred. Currently, the Trust expects the risk of loss to be remote. Annual Report | 71 Franklin Templeton Fund Allocator Series NOTES TO FINANCIAL STATEMENTS (CONTINUED) 2. SHARES OF BENEFICIAL INTEREST At December 31, 2009, there were an unlimited number of shares authorized (without par value). Transactions in the Funds' shares were as follows:
FRANKLIN TEMPLETON FRANKLIN TEMPLETON 2015 RETIREMENT 2025 RETIREMENT TARGET FUND TARGET FUND ---------------------- ----------------------- SHARES AMOUNT SHARES AMOUNT -------- ----------- --------- ----------- CLASS A SHARES: Year ended December 31, 2009 Shares sold ............................... 907,400 $ 8,161,362 1,043,264 $ 8,564,140 Shares issued in reinvestment of distributions .......................... 38,856 359,866 50,737 443,738 Shares redeemed ........................... (419,782) (3,648,933) (353,798) (2,937,110) -------- ----------- --------- ----------- Net increase (decrease) ................... 526,474 $ 4,872,295 740,203 $ 6,070,768 ======== =========== ======= =========== Year ended December 31, 2008 Shares sold ............................... 875,282 $ 8,706,575 961,941 $ 9,374,538 Shares issued in reinvestment of distributions .......................... 32,398 299,153 49,889 441,620 Shares redeemed ........................... (216,068) (1,966,262) (291,651) (2,543,522) -------- ----------- --------- ----------- Net increase (decrease) ................... 691,612 $ 7,039,466 720,179 $ 7,272,636 ======== =========== ======= =========== CLASS C SHARES: Year ended December 31, 2009 Shares sold ............................... 582,526 $ 5,164,172 456,773 $ 3,767,686 Shares issued in reinvestment of distributions .......................... 12,262 113,127 11,020 94,470 Shares redeemed ........................... (338,573) (2,695,979) (144,058) (1,176,176) -------- ----------- --------- ----------- Net increase (decrease) ................... 256,215 $ 2,581,320 323,735 $ 2,685,980 ======== =========== ======= =========== Year ended December 31, 2008 Shares sold ............................... 710,317 $ 7,167,011 273,080 $ 2,613,167 Shares issued in reinvestment of distributions .......................... 16,315 154,225 8,634 76,524 Shares redeemed ........................... (351,199) (3,337,117) (35,040) (307,276) -------- ----------- --------- ----------- Net increase (decrease) ................... 375,433 $ 3,984,119 246,674 $ 2,382,415 ======== =========== ======= =========== CLASS R SHARES: Year ended December 31, 2009 Shares sold ............................... 39,669 $ 347,239 28,890 $ 258,030 Shares issued in reinvestment of distributions .......................... 3,298 30,260 809 7,173 Shares redeemed ........................... (9,445) (87,648) (2,220) (18,451) -------- ----------- --------- ----------- Net increase (decrease) ................... 33,522 $ 289,851 27,479 $ 246,752 ======== =========== ======= =========== Year ended December 31, 2008 Shares sold ............................... 27,245 $ 283,010 13,572 $ 137,944 Shares issued in reinvestment of distributions .......................... 3,756 35,625 897 8,225 Shares redeemed ........................... (24,499) (246,257) (10,175) (96,228) -------- ----------- --------- ----------- Net increase (decrease) ................... 6,502 $ 72,378 4,294 $ 49,941 ======== =========== ======= ===========
72 | Annual Report Franklin Templeton Fund Allocator Series NOTES TO FINANCIAL STATEMENTS (CONTINUED) 2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
FRANKLIN TEMPLETON FRANKLIN TEMPLETON 2015 RETIREMENT 2025 RETIREMENT TARGET FUND TARGET FUND ------------------ ------------------ SHARES AMOUNT SHARES AMOUNT ------ -------- ------ -------- ADVISOR CLASS SHARES: Year ended December 31, 2009 Shares sold ............................... 11 $ 106 8,478 $ 59,651 Shares issued in reinvestment of distributions .......................... 595 5,454 1,427 12,480 Shares redeemed ........................... (1,240) (11,935) (4,571) (36,856) ------ -------- ------ -------- Net increase (decrease) ................... (634) $ (6,375) 5,334 $ 35,275 ====== ======== ====== ======== Year ended December 31, 2008 Shares sold ............................... 18,911 $201,893 10,079 $110,551 Shares issued in reinvestment of distributions .......................... 750 7,092 2,132 19,170 Shares redeemed ........................... (2,394) (24,798) (5,464) (43,470) ------ -------- ------ -------- Net increase (decrease) ................... 17,267 $184,187 6,747 $ 86,251 ====== ======== ====== ========
FRANKLIN TEMPLETON FRANKLIN TEMPLETON 2035 RETIREMENT 2045 RETIREMENT TARGET FUND TARGET FUND ---------------------- --------------------- SHARES AMOUNT SHARES AMOUNT -------- ----------- -------- ---------- CLASS A SHARES: Year ended December 31, 2009 Shares sold ............................... 582,346 $ 4,588,112 359,779 $2,772,073 Shares issued in reinvestment of distributions .......................... 25,833 218,195 17,365 141,373 Shares redeemed ........................... (249,555) (2,077,449) (108,978) (866,271) -------- ----------- -------- ---------- Net increase (decrease) ................... 358,624 $ 2,728,858 268,166 $2,047,175 ======== =========== ======== ========== Year ended December 31, 2008 Shares sold ............................... 539,247 $ 5,181,122 312,283 $3,000,890 Shares issued in reinvestment of distributions .......................... 22,905 206,765 13,716 120,164 Shares redeemed ........................... (134,219) (1,183,935) (44,626) (412,507) -------- ----------- -------- ---------- Net increase (decrease) ................... 427,933 $ 4,203,952 281,373 $2,708,547 ======== =========== ======== ========== CLASS C SHARES: Year ended December 31, 2009 Shares sold ............................... 284,199 $ 2,259,656 132,014 $1,014,563 Shares issued in reinvestment of distributions .......................... 6,606 54,119 4,150 32,495 Shares redeemed ........................... (76,333) (620,792) (25,445) (200,362) -------- ----------- -------- ---------- Net increase (decrease) ................... 214,472 $ 1,692,983 110,719 $ 846,696 ======== =========== ======== ========== Year ended December 31, 2008 Shares sold ............................... 143,566 $ 1,353,699 103,668 $ 882,722 Shares issued in reinvestment of distributions .......................... 5,241 48,916 3,042 27,321 Shares redeemed ........................... (28,939) (260,931) (8,500) (68,693) -------- ----------- -------- ---------- Net increase (decrease) ................... 119,868 $ 1,141,684 98,210 $ 841,350 ======== =========== ======== ==========
Annual Report | 73 Franklin Templeton Fund Allocator Series NOTES TO FINANCIAL STATEMENTS (CONTINUED) 2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
FRANKLIN TEMPLETON FRANKLIN TEMPLETON 2035 RETIREMENT 2045 RETIREMENT TARGET FUND TARGET FUND ------------------- ------------------- SHARES AMOUNT SHARES AMOUNT ------- --------- ------- --------- CLASS R SHARES: Year ended December 31, 2009 Shares sold .................... 15,155 $ 117,182 23,301 $ 173,778 Shares issued in reinvestment of distributions ............... 875 7,340 927 7,604 Shares redeemed ................ (919) (7,491) (3,608) (23,977) ------- --------- ------- --------- Net increase (decrease) ........ 15,111 $ 117,031 20,620 $ 157,405 ======= ========= ======= ========= Year ended December 31, 2008 Shares sold .................... 15,557 $ 156,698 19,145 $ 196,091 Shares issued in reinvestment of distributions ............... 1,147 11,056 1,208 11,418 Shares redeemed ................ (19,649) (184,471) (11,585) (107,553) ------- --------- ------- --------- Net increase (decrease) ........ (2,945) $ (16,717) 8,768 $ 99,956 ======= ========= ======= ========= ADVISOR CLASS SHARES: Year ended December 31, 2009 Shares sold .................... 21,742 $ 170,755 8,135 $ 65,820 Shares issued in reinvestment of distributions ............... 1,413 12,029 634 5,235 Shares redeemed ................ (531) (4,659) (1,601) (11,639) ------- --------- ------- --------- Net increase (decrease) ........ 22,624 $ 178,125 7,168 $ 59,416 ======= ========= ======= ========= Year ended December 31, 2008 Shares sold .................... 20,527 $ 212,613 7,432 $ 73,689 Shares issued in reinvestment of distributions ............... 1,254 11,287 863 7,870 Shares redeemed ................ (2,139) (20,255) (7,256) (67,087) ------- --------- ------- --------- Net increase (decrease) ........ 19,642 $ 203,645 1,039 $ 14,472 ======= ========= ======= =========
3. TRANSACTIONS WITH AFFILIATES Franklin Resources, Inc. is the holding company for various subsidiaries that together are referred to as Franklin Templeton Investments. Certain officers and trustees of the Trust are also officers and/or directors/trustees of certain of the Underlying Funds and of the following subsidiaries:
SUBSIDIARY AFFILIATION - ---------- ---------------------- Franklin Advisers, Inc. (Advisers) Investment manager Franklin Templeton Services, LLC (FT Services) Administrative manager Franklin Templeton Distributors, Inc. (Distributors) Principal underwriter Franklin Templeton Investor Services, LLC (Investor Services) Transfer agent
74 | Annual Report Franklin Templeton Fund Allocator Series NOTES TO FINANCIAL STATEMENTS (CONTINUED) 3. TRANSACTIONS WITH AFFILIATES (CONTINUED) A. ASSET ALLOCATION FEES The Funds pay an asset allocation fee to Advisers of 0.25% per year of the average daily net assets of each of the Funds for investment advisory services, consisting principally of determining the allocation of assets of the Funds among the designated Underlying Funds. B. ADMINISTRATIVE FEES Under an agreement with Advisers, FT Services provides administrative services to the Funds. The fee is paid by Advisers based on average daily net assets, and is not an additional expense of the Funds. C. DISTRIBUTION FEES The Trust's Board of Trustees has adopted distribution plans for each share class, with the exception of Advisor Class shares, pursuant to Rule 12b-1 under the 1940 Act. On December 1, 2008, the Trust's Board of Trustees approved a modification to the Class A distribution plan, for those funds that had a Class A compensation plan, changing the form of the plan from a compensation to a reimbursement distribution plan. Under the distribution plan, the Funds reimburse Distributors for costs incurred in connection with the servicing, sale and distribution of each Funds' shares up to the maximum annual plan rate for each class. This change was effective February 1, 2009. Under the Class A reimbursement distribution plans, costs exceeding the maximum for the current plan year cannot be reimbursed in subsequent periods. Prior to February 1, 2009, under the Funds' Class A compensation distribution plan, the Funds paid Distributors for costs incurred in connection with the servicing, sale and distribution of the Funds' shares up to a certain percentage per year of its average daily net assets. In addition, under the Funds' Class C and R compensation distribution plans, the Funds pay Distributors for costs incurred in connection with the servicing, sale and distribution of each fund's shares up to the maximum annual plan rate for each class. The maximum annual plan rates, based on the average daily net assets, for each class, are as follows: Class A ......... 0.35% Class C ......... 1.00% Class R ......... 0.50%
The Board of Trustees has set the current rate at 0.30% per year for Class A shares until further notice and approval by the Board. Annual Report | 75 Franklin Templeton Fund Allocator Series NOTES TO FINANCIAL STATEMENTS (CONTINUED) 3. TRANSACTIONS WITH AFFILIATES (CONTINUED) D. SALES CHARGES/UNDERWRITING AGREEMENTS Distributors has advised the Funds of the following commission transactions related to the sales and redemptions of the Funds' shares for the year:
FRANKLIN FRANKLIN FRANKLIN FRANKLIN TEMPLETON TEMPLETON TEMPLETON TEMPLETON 2015 2025 2035 2045 RETIREMENT RETIREMENT RETIREMENT RETIREMENT TARGET FUND TARGET FUND TARGET FUND TARGET FUND ----------- ----------- ----------- ----------- Sales charges retained net of commissions paid to unaffiliated broker/dealers .................. $26,959 $36,572 $21,471 $12,682 Contingent deferred sales charges retained ...... $ 820 $ 743 $ 633 $ 211
E. TRANSFER AGENT FEES For the year ended December 31, 2009, the Funds paid transfer agent fees as noted in the Statements of Operations of which the following amounts were retained by Investor Services:
FRANKLIN FRANKLIN FRANKLIN FRANKLIN TEMPLETON TEMPLETON TEMPLETON TEMPLETON 2015 2025 2035 2045 RETIREMENT RETIREMENT RETIREMENT RETIREMENT TARGET FUND TARGET FUND TARGET FUND TARGET FUND ----------- ----------- ----------- ----------- Transfer agent fees ............................. $22,646 $32,021 $29,654 $26,675
F. WAIVER AND EXPENSE REIMBURSEMENTS Advisers has contractually agreed in advance to waive or limit its fees and to assume as its own expense certain expenses otherwise payable by the Funds so that the common expenses (i.e. a combination of asset allocation fees and other expenses, but excluding distribution fees and acquired fund fees and expenses) for each class of the Funds do not exceed 0.15% (other than certain non-routine expenses or costs, including those relating to litigation, indemnification, reorganizations, and liquidations) until April 30, 2010. Prior to May 1, 2009, the common expenses and acquired fund fees and expenses were limited to 0.97%, 1.00%, 1.04% and 1.04% for the Franklin Templeton 2015 Retirement Target Fund, Franklin Templeton 2025 Retirement Target Fund, Franklin Templeton 2035 Retirement Target Fund and Franklin Templeton 2045 Retirement Target Fund, respectively. G. OTHER AFFILIATED TRANSACTIONS At December 31, 2009, Advisers owned 9.00% of the Franklin Templeton 2045 Retirement Target Fund's outstanding shares. 76 | Annual Report Franklin Templeton Fund Allocator Series NOTES TO FINANCIAL STATEMENTS (CONTINUED) 4. INCOME TAXES For tax purposes, capital losses may be carried over to offset future capital gains, if any. At December 31, 2009, the capital loss carryforwards were as follows:
FRANKLIN FRANKLIN FRANKLIN FRANKLIN TEMPLETON TEMPLETON TEMPLETON TEMPLETON 2015 2025 2035 2045 RETIREMENT RETIREMENT RETIREMENT RETIREMENT TARGET FUND TARGET FUND TARGET FUND TARGET FUND ----------- ----------- ----------- ----------- Capital loss carryforwards expiring in: 2017 ............................... $786,885 $940,348 $560,066 $365,530
The tax character of distributions paid during the years ended December 31, 2009 and 2008, was as follows:
FRANKLIN TEMPLETON FRANKLIN TEMPLETON 2015 RETIREMENT 2025 RETIREMENT TARGET FUND TARGET FUND ------------------- ------------------- 2009 2008 2009 2008 -------- -------- -------- -------- Distributions paid from: Ordinary income .................... $432,437 $283,898 $348,017 $222,191 Long term capital gain ............. 109,005 273,334 229,405 364,160 -------- -------- -------- -------- 541,442 557,232 577,422 586,351 ======== ======== ======== ========
FRANKLIN TEMPLETON FRANKLIN TEMPLETON 2035 RETIREMENT 2045 RETIREMENT TARGET FUND TARGET FUND ------------------- ------------------- 2009 2008 2009 2008 -------- -------- -------- -------- Distributions paid from: Ordinary income .................... $178,895 $ 77,258 $ 93,266 $ 50,135 Long term capital gain ............. 135,725 247,488 127,010 169,913 -------- -------- -------- -------- $314,620 $324,746 $220,276 $220,048 ======== ======== ======== ========
At December 31, 2009, the cost of investments, net unrealized appreciation (depreciation) and undistributed ordinary income for income tax purposes were as follows:
FRANKLIN FRANKLIN FRANKLIN FRANKLIN TEMPLETON TEMPLETON TEMPLETON TEMPLETON 2015 2025 2035 2045 RETIREMENT RETIREMENT RETIREMENT RETIREMENT TARGET FUND TARGET FUND TARGET FUND TARGET FUND ----------- ----------- ----------- ----------- Cost of investments ................... $26,624,002 $26,278,030 $14,792,542 $9,368,004 =========== =========== =========== ========== Unrealized appreciation ............... $ 1,242,521 $ 1,385,965 $ 906,280 $ 607,513 Unrealized depreciation ............... (866,093) (811,996) (502,438) (313,209) ----------- ----------- ----------- ---------- Net unrealized appreciation (depreciation) ..................... $ 376,428 $ 573,969 $ 403,842 $ 294,304 =========== =========== =========== ========== Distributable earnings - undistributed ordinary income .................... $ 9,528 $ 9,517 $ 5,829 $ 4,856 =========== =========== =========== ==========
Annual Report | 77 Franklin Templeton Fund Allocator Series NOTES TO FINANCIAL STATEMENTS (CONTINUED) 4. INCOME TAXES (CONTINUED) Net investment income (loss) differs for financial statement and tax purposes primarily due to differing treatment of short term capital gains distributions from Underlying Funds. Net realized gains (losses) differ for financial statement and tax purposes primarily due to differing treatments of wash sales and short term capital gains distributions from Underlying Funds. 5. INVESTMENT TRANSACTIONS Purchases and sales of Underlying Funds (excluding short term securities) for the year ended December 31, 2009, were as follows:
FRANKLIN FRANKLIN FRANKLIN FRANKLIN TEMPLETON TEMPLETON TEMPLETON TEMPLETON 2015 2025 2035 2045 RETIREMENT RETIREMENT RETIREMENT RETIREMENT TARGET FUND TARGET FUND TARGET FUND TARGET FUND ----------- ----------- ----------- ----------- Purchases ............ $8,617,816 $10,538,407 $6,810,536 $3,911,387 Sales ................ $2,186,415 $ 2,406,704 $2,121,384 $ 960,609
6. INVESTMENTS IN UNDERLYING FUNDS The Funds invest primarily in the Underlying Funds which are managed by Advisers (or an affiliate of Advisers). The Funds do not invest in the Underlying Funds for the purpose of exercising management or control. At December 31, 2009, the Funds held no positions which exceed 5% of the Underlying Funds' shares outstanding. The Funds may invest in the Institutional Fiduciary Trust Money Market Portfolio (Sweep Money Fund), an open-end investment company managed by Advisers. Pursuant to a SEC exemptive order specific to the Funds' investment in the Sweep Money Fund, asset allocation fees are reduced on assets invested in the Sweep Money Fund, in an amount not to exceed the management and administrative fees paid by the Sweep Money Fund. 7. SPECIAL SERVICING AGREEMENT On May 1, 2009, the Funds entered into a Special Servicing Agreement (SSA) with the Underlying Funds and certain service providers of the Funds and of the Underlying Funds. Under the SSA, each Underlying Fund may pay a portion of the Funds' expenses (other than any asset allocation, administrative, and distribution fees) to the extent such payments are less than the amount of the benefits realized or expected to be realized by the Underlying Fund (e.g., due to reduced costs associated with servicing accounts) from the investment in the Underlying Fund by the Funds. The amount of expenses allocated during the year ended December 31, 2009 is noted in the Statements of Operations. 78 | Annual Report Franklin Templeton Fund Allocator Series NOTES TO FINANCIAL STATEMENTS (CONTINUED) 8. CREDIT FACILITY The Funds, together with other U.S. registered and foreign investment funds (collectively "Borrowers"), managed by Franklin Templeton Investments, are borrowers in a joint syndicated senior unsecured credit facility totaling $725 million (Global Credit Facility) to provide a source of funds to the Borrowers for temporary and emergency purposes, including the ability to meet future unanticipated or unusually large redemption requests. Effective January 22, 2010, the Funds renewed the Global Credit Facility, for a total of $750 million, maturing January 21, 2011. Under the terms of the Global Credit Facility, the Funds shall, in addition to interest charged on any borrowings made by the Funds and other costs incurred by the Funds, pay their share of fees and expenses incurred in connection with the implementation and maintenance of the Global Credit Facility, based upon their relative share of the aggregate net assets of all of the Borrowers, including an annual commitment fee of 0.10% based upon the unused portion of the Global Credit Facility, which is reflected in other expenses on the Statements of Operations. During the year ended December 31, 2009, the Funds did not utilize the Global Credit Facility. 9. FAIR VALUE MEASUREMENTS The Trust follows a fair value hierarchy that distinguishes between market data obtained from independent sources (observable inputs) and the Trust's own market assumptions (unobservable inputs). These inputs are used in determining the value of the Funds' investments and are summarized in the following fair value hierarchy: - Level 1 - quoted prices in active markets for identical securities - Level 2 - other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speed, credit risk, etc.) - Level 3 - significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments) The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities. At December 31, 2009, all of the Funds' investments in Underlying Funds carried at fair value were in Level 1 inputs. For detailed Underlying Fund categories, see the accompanying Statements of Investments. 10. NEW ACCOUNTING PRONOUNCEMENTS In January 2010, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) No. 2010-6, FAIR VALUE MEASUREMENTS AND DISCLOSURES (TOPIC 820): IMPROVING DISCLOSURES ABOUT FAIR VALUE MEASUREMENTS. ASU No. 2010-6 enhances and clarifies existing fair value Annual Report | 79 Franklin Templeton Fund Allocator Series NOTES TO FINANCIAL STATEMENTS (CONTINUED) 10. NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED) measurement disclosure requirements and is effective for interim and annual periods beginning after December 15, 2009. The Funds are currently evaluating the impact, if any, of applying the provisions of ASU No. 2010-6. 11. SUBSEQUENT EVENTS The Funds have evaluated subsequent events through February 15, 2010, the issuance date of the financial statements and determined that no events have occurred that require disclosure. 80 | Annual Report Franklin Templeton Fund Allocator Series REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF FRANKLIN TEMPLETON FUND ALLOCATOR SERIES In our opinion, the accompanying statements of assets and liabilities, including the statements of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Franklin Templeton 2015 Retirement Target Fund, Franklin Templeton 2025 Retirement Target Fund, Franklin Templeton 2035 Retirement Target Fund and Franklin Templeton 2045 Retirement Target Fund (separate portfolios of Franklin Templeton Fund Allocator Series, hereafter referred to as the "Funds") at December 31, 2009, the results of each of their operations for the year then ended, the changes in each of their net assets for each of the two years in the period then ended and the financial highlights for the periods presented, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of investment in the Underlying Funds at December 31, 2009 by correspondence with the transfer agent of the Underlying Funds, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP San Francisco, California February 15, 2010 Annual Report | 81 Franklin Templeton Fund Allocator Series TAX DESIGNATION (UNAUDITED) Under Section 852(b)(3)(C) of the Internal Revenue Code (Code), the Funds designate the maximum amount allowable but no less than the following amounts as long term capital gain dividends for the fiscal year ended December 31, 2009:
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON 2015 RETIREMENT 2025 RETIREMENT 2035 RETIREMENT 2045 RETIREMENT TARGET FUND TARGET FUND TARGET FUND TARGET FUND - ------------------ ------------------ ------------------ ------------------ $109,005 $229,405 $135,725 $127,010
Under Section 854(b)(2) of the Code, the Funds designate the following percentage amounts of the ordinary income dividends as income qualifying for the dividends received deduction for the fiscal year ended December 31, 2009:
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON 2015 RETIREMENT 2025 RETIREMENT 2035 RETIREMENT 2045 RETIREMENT TARGET FUND TARGET FUND TARGET FUND TARGET FUND - ------------------ ------------------ ------------------ ------------------ 11.15% 16.72% 22.75% 28.09%
Under Section 854(b)(2) of the Code, the Funds designate the maximum amount allowable but no less than the following amounts as qualified dividends for purposes of the maximum rate under Section 1(h)(11) of the Code for the fiscal year ended December 31, 2009:
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON 2015 RETIREMENT 2025 RETIREMENT 2035 RETIREMENT 2045 RETIREMENT TARGET FUND TARGET FUND TARGET FUND TARGET FUND - ------------------ ------------------ ------------------ ------------------ $186,611 $224,080 $155,192 $100,921
Distributions, including qualified dividend income, paid during calendar year 2009 will be reported to shareholders on Form 1099-DIV in January 2010. Shareholders are advised to check with their tax advisors for information on the treatment of these amounts on their individual income tax returns. 82 | Annual Report Franklin Templeton Fund Allocator Series BOARD MEMBERS AND OFFICERS The name, year of birth and address of the officers and board members, as well as their affiliations, positions held with the Trust, principal occupations during the past five years and number of portfolios overseen in the Franklin Templeton Investments fund complex are shown below. Generally, each board member serves until that person's successor is elected and qualified. INDEPENDENT BOARD MEMBERS
NUMBER OF PORTFOLIOS IN NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD - -------------------------- --------------- --------------- ----------------------- ----------------------------------------- HARRIS J. ASHTON (1932) Trustee Since 1995 133 Bar-S Foods (meat packing company). One Franklin Parkway San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Director of various companies; and FORMERLY, Director, RBC Holdings, Inc. (bank holding company) (until 2002); and President, Chief Executive Officer and Chairman of the Board, General Host Corporation (nursery and craft centers) (until 1998). - ------------------------------------------------------------------------------------------------------------------------------------ ROBERT F. CARLSON (1928) Trustee Since 2005 110 None One Franklin Parkway San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Retired; and FORMERLY, Vice President, senior member and President, Board of Administration, California Public Employees Retirement Systems (CALPERS) (1971-2008); member and Chairman of the Board, Sutter Community Hospitals; member, Corporate Board, Blue Shield of California; and Chief Counsel, California Department of Transportation. - ------------------------------------------------------------------------------------------------------------------------------------ SAM GINN (1937) Trustee Since 2007 110 ICO Global Communications One Franklin Parkway (Holdings) Limited (satellite company). San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Private investor; and FORMERLY, Chairman of the Board, Vodafone AirTouch, PLC (wireless company); Chairman of the Board and Chief Executive Officer, AirTouch Communications (cellular communications) (1993-1998) and Pacific Telesis Groups (telephone holding company) (1988-1994). - ------------------------------------------------------------------------------------------------------------------------------------ EDITH E. HOLIDAY (1952) Trustee Since 1998 133 Hess Corporation (exploration and One Franklin Parkway refining of oil and gas), H.J. Heinz San Mateo, CA 94403-1906 Company (processed foods and allied products), RTI International Metals, Inc. (manufacture and distribution of titanium), Canadian National Railway (railroad) and White Mountains Insurance Group, Ltd. (holding company). PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Director or Trustee of various companies and trusts; and FORMERLY, Assistant to the President of the United States and Secretary of the Cabinet (1990-1993); General Counsel to the United States Treasury Department (1989-1990); and Counselor to the Secretary and Assistant Secretary for Public Affairs and Public Liaison - United States Treasury Department (1988-1989).
Annual Report | 83
NUMBER OF PORTFOLIOS IN NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD - -------------------------- --------------- --------------- ----------------------- ----------------------------------------- FRANK W.T. LAHAYE (1929) Trustee Since 1995 109 None One Franklin Parkway San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: General Partner, Las Olas L.P. (Asset Management); and FORMERLY, Chairman, Peregrine Venture Management Company (venture capital). - ------------------------------------------------------------------------------------------------------------------------------------ J. MICHAEL LUTTIG (1954) Trustee Since December 133 Boeing Capital Corporation (aircraft One Franklin Parkway 2009 financing). San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Executive Vice President, General Counsel and member of Executive Council, The Boeing Company; and FORMERLY, Federal Appeals Court Judge, U.S. Court of Appeals for the Fourth Circuit (1991-2006). - ------------------------------------------------------------------------------------------------------------------------------------ FRANK A. OLSON (1932) Trustee Since 2007 133 Hess Corporation (exploration and One Franklin Parkway refining of oil and gas). San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Chairman Emeritus, The Hertz Corporation (car rental) (since 2000) (Chairman of the Board (1980-2000) and Chief Executive Officer (1977-1999)); and FORMERLY, Chairman of the Board, President and Chief Executive Officer, UAL Corporation (airlines). - ------------------------------------------------------------------------------------------------------------------------------------ LARRY D. THOMPSON (1945) Trustee Since 2007 141 None One Franklin Parkway San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Senior Vice President - Government Affairs, General Counsel and Secretary, PepsiCo, Inc. (consumer products); and FORMERLY, Director, Delta Airlines (aviation) (2003-2005) and Providian Financial Corp. (credit card provider) (1997-2001); Senior Fellow of The Brookings Institution (2003-2004); Visiting Professor, University of Georgia School of Law (2004); and Deputy Attorney General, U.S. Department of Justice (2001-2003). - ------------------------------------------------------------------------------------------------------------------------------------ JOHN B. WILSON (1959) Lead Trustee since 110 None One Franklin Parkway Independent 2006 and Lead San Mateo, CA 94403-1906 Trustee Independent Trustee since 2008 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: President and Founder, Hyannis Port Capital, Inc. (real estate and private equity investing); serves on private and non-profit boards; and FORMERLY, Chief Operating Officer and Executive Vice President, Gap, Inc. (retail) (1996-2000); Chief Financial Officer and Executive Vice President - Finance and Strategy, Staples, Inc. (office supplies) (1992-1996); Senior Vice President - Corporate Planning, Northwest Airlines, Inc. (airlines) (1990-1992); and Vice President and Partner, Bain & Company (consulting firm) (1986-1990).
84 | Annual Report INTERESTED BOARD MEMBERS AND OFFICERS
NUMBER OF PORTFOLIOS IN NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD - -------------------------- --------------- --------------- ----------------------- ----------------------------------------- **CHARLES B. JOHNSON (1933) Trustee and Since 1995 133 None One Franklin Parkway Chairman of San Mateo, CA 94403-1906 the Board PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Chairman of the Board, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Director, Templeton Worldwide, Inc.; and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 41 of the investment companies in Franklin Templeton Investments. - ------------------------------------------------------------------------------------------------------------------------------------ **GREGORY E. JOHNSON (1961) Trustee Since 2007 89 None One Franklin Parkway San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Director, President and Chief Executive Officer, Franklin Resources, Inc.; President, Templeton Worldwide, Inc.; and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 32 of the investment companies in Franklin Templeton Investments. - ------------------------------------------------------------------------------------------------------------------------------------ JAMES M. DAVIS (1952) Chief Chief Not Applicable Not Applicable One Franklin Parkway Compliance Compliance San Mateo, CA 94403-1906 Officer and Officer since Vice President 2004 and Vice - AML President - AML Compliance Compliance since 2006 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Director, Global Compliance, Franklin Resources, Inc.; officer of some of the other subsidiaries of Franklin Resources, Inc. and of 45 of the investment companies in Franklin Templeton Investments; and FORMERLY, Director of Compliance, Franklin Resources, Inc. (1994-2001). - ------------------------------------------------------------------------------------------------------------------------------------ LAURA F. FERGERSON (1962) Chief Since March Not Applicable Not Applicable One Franklin Parkway Executive 2009 San Mateo, CA 94403-1906 Officer - Finance and Administration PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Senior Vice President, Franklin Templeton Services, LLC; officer of 45 of the investment companies in Franklin Templeton Investments; and FORMERLY, Director and member of Audit and Valuation Committees, Runkel Funds, Inc. (2003-2004); Assistant Treasurer of most of the investment companies in Franklin Templeton Investments (1997-2003); and Vice President, Franklin Templeton Services, LLC (1997-2003). - ------------------------------------------------------------------------------------------------------------------------------------ GASTON GARDEY (1967) Treasurer, Since March Not Applicable Not Applicable One Franklin Parkway Chief Financial 2009 San Mateo, CA 94403-1906 Officer and Chief Accounting Officer PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Director, Fund Accounting, Franklin Templeton Investments; and officer of 27 of the investment companies in Franklin Templeton Investments.
Annual Report | 85
NUMBER OF PORTFOLIOS IN NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD - -------------------------- --------------- --------------- ----------------------- ----------------------------------------- ALIYA S. GORDON (1973) Vice President Since March Not Applicable Not Applicable One Franklin Parkway 2009 San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Associate General Counsel, Franklin Templeton Investments; officer of 45 of the investment companies in Franklin Templeton Investments; and FORMERLY, Litigation Associate, Steefel, Levitt & Weiss, LLP (2000-2004). - ------------------------------------------------------------------------------------------------------------------------------------ DAVID P. GOSS (1947) Vice President Since 2000 Not Applicable Not Applicable One Franklin Parkway San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Senior Associate General Counsel, Franklin Templeton Investments; officer and/or director, as the case maybe, of some of the other subsidiaries of Franklin Resources, Inc. and of 45 of the investment companies in Franklin Templeton Investments. - ------------------------------------------------------------------------------------------------------------------------------------ STEVEN J. GRAY (1955) Vice President Since August Not Applicable Not Applicable One Franklin Parkway 2009 San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Senior Associate General Counsel, Franklin Templeton Investments; Vice President, Franklin Templeton Distributors, Inc.; and officer of 45 of the investment companies in Franklin Templeton Investments. - ------------------------------------------------------------------------------------------------------------------------------------ RUPERT H. JOHNSON, JR. President and President and Not Applicable Not Applicable (1940) One Franklin Chief Chief Executive Parkway San Mateo, CA Executive Officer - 94403-1906 Officer - Investment Investment Management Management since 2002 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Director, Franklin Advisers, Inc. and Templeton Worldwide, Inc.; Senior Vice President, Franklin Advisory Services, LLC; and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 43 of the investment companies in Franklin Templeton Investments. - ------------------------------------------------------------------------------------------------------------------------------------ ROBERT C. ROSSELOT (1960) Vice President Since August Not Applicable Not Applicable 500 East Broward Blvd. 2009 Suite 2100 Fort Lauderdale, FL 33394-3091 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Senior Associate General Counsel, Franklin Templeton Investments; Assistant Secretary, Franklin Resources, Inc.; Vice President and Secretary, Templeton Investment Counsel, LLC; Vice President, Secretary and Trust Officer, Fiduciary Trust International of the South; and officer of 45 of the investment companies in Franklin Templeton Investments. - ------------------------------------------------------------------------------------------------------------------------------------ KAREN L. SKIDMORE (1952) Vice President Since 2006 Not Applicable Not Applicable One Franklin Parkway and Secretary San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Senior Associate General Counsel, Franklin Templeton Investments; and officer of 45 of the investment companies in Franklin Templeton Investments.
86 | Annual Report
NUMBER OF PORTFOLIOS IN NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD - -------------------------- --------------- --------------- ----------------------- ----------------------------------------- CRAIG S. TYLE (1960) Vice President Since 2005 Not Applicable Not Applicable One Franklin Parkway San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: General Counsel and Executive Vice President, Franklin Resources, Inc.; officer of some of the other subsidiaries of Franklin Resources, Inc. and of 45 of the investment companies in Franklin Templeton Investments; and FORMERLY, Partner, Shearman & Sterling, LLP (2004-2005); and General Counsel, Investment Company Institute (ICI) (1997-2004).
* We base the number of portfolios on each separate series of the U.S. registered investment companies within the Franklin Templeton Investments fund complex. These portfolios have a common investment manager or affiliated investment managers. ** Charles B. Johnson is considered to be an interested person of the Fund under the federal securities laws due to his position as officer and director and major shareholder of Franklin Resources, Inc. (Resources), which is the parent company of the Fund's investment manager and distributor. Gregory E. Johnson is considered to be an interested person of the Fund under the federal securities laws due to his position as an officer and director of Resources. Note 1: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers and the father and uncle, respectively, of Gregory E. Johnson. Note 2: Officer information is current as of the date of this report. It is possible that after this date, information about officers may change. THE SARBANES-OXLEY ACT OF 2002 AND RULES ADOPTED BY THE SECURITIES AND EXCHANGE COMMISSION REQUIRE THE FUND TO DISCLOSE WHETHER THE FUND'S AUDIT COMMITTEE INCLUDES AT LEAST ONE MEMBER WHO IS AN AUDIT COMMITTEE FINANCIAL EXPERT WITHIN THE MEANING OF SUCH ACT AND RULES. THE FUND'S BOARD HAS DETERMINED THAT THERE IS AT LEAST ONE SUCH FINANCIAL EXPERT ON THE AUDIT COMMITTEE AND HAS DESIGNATED JOHN B. WILSON AS ITS AUDIT COMMITTEE FINANCIAL EXPERT. THE BOARD BELIEVES THAT MR. WILSON QUALIFIES AS SUCH AN EXPERT IN VIEW OF HIS EXTENSIVE BUSINESS BACKGROUND AND EXPERIENCE, INCLUDING SERVICE AS CHIEF FINANCIAL OFFICER OF STAPLES, INC. FROM 1992 TO 1996. MR. WILSON HAS BEEN A MEMBER AND CHAIRMAN OF THE FUND'S AUDIT COMMITTEE SINCE 2006. AS A RESULT OF SUCH BACKGROUND AND EXPERIENCE, THE BOARD BELIEVES THAT MR. WILSON HAS ACQUIRED AN UNDERSTANDING OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND FINANCIAL STATEMENTS, THE GENERAL APPLICATION OF SUCH PRINCIPLES IN CONNECTION WITH THE ACCOUNTING ESTIMATES, ACCRUALS AND RESERVES, AND ANALYZING AND EVALUATING FINANCIAL STATEMENTS THAT PRESENT A BREADTH AND LEVEL OF COMPLEXITY OF ACCOUNTING ISSUES GENERALLY COMPARABLE TO THOSE OF THE FUND, AS WELL AS AN UNDERSTANDING OF INTERNAL CONTROLS AND PROCEDURES FOR FINANCIAL REPORTING AND AN UNDERSTANDING OF AUDIT COMMITTEE FUNCTIONS. MR. WILSON IS AN INDEPENDENT BOARD MEMBER AS THAT TERM IS DEFINED UNDER THE RELEVANT SECURITIES AND EXCHANGE COMMISSION RULES AND RELEASES. THE STATEMENT OF ADDITIONAL INFORMATION (SAI) INCLUDES ADDITIONAL INFORMATION ABOUT THE BOARD MEMBERS AND IS AVAILABLE, WITHOUT CHARGE, UPON REQUEST. SHAREHOLDERS MAY CALL (800) DIAL BEN/(800) 342-5236 TO REQUEST THE SAI. Annual Report | 87 Franklin Templeton Fund Allocator Series SHAREHOLDER INFORMATION PROXY VOTING POLICIES AND PROCEDURES The Trust's investment manager has established Proxy Voting Policies and Procedures (Policies) that the Trust uses to determine how to vote proxies relating to portfolio securities. Shareholders may view the Trust's complete Policies online at franklintempleton.com. Alternatively, shareholders may request copies of the Policies free of charge by calling the Proxy Group collect at (954) 527-7678 or by sending a written request to: Franklin Templeton Companies, LLC, 500 East Broward Boulevard, Suite 1500, Fort Lauderdale, FL 33394, Attention: Proxy Group. Copies of the Trust's proxy voting records are also made available online at franklintempleton.com and posted on the U.S. Securities and Exchange Commission's website at sec.gov and reflect the most recent 12-month period ended June 30. QUARTERLY STATEMENT OF INVESTMENTS The Trust files a complete statement of investments with the U.S. Securities and Exchange Commission for the first and third quarters for each fiscal year on Form N-Q. Shareholders may view the filed Form N-Q by visiting the Commission's website at sec.gov. The filed form may also be viewed and copied at the Commission's Public Reference Room in Washington, DC. Information regarding the operations of the Public Reference Room may be obtained by calling (800) SEC-0330. 88 | Annual Report Franklin Templeton Funds LITERATURE REQUEST. TO RECEIVE A PROSPECTUS, PLEASE CALL US AT (800) DIAL BEN/(800) 342-5236 OR VISIT franklintempleton.com. INVESTORS SHOULD CAREFULLY CONSIDER A FUND'S INVESTMENT GOALS, RISKS, CHARGES AND EXPENSES BEFORE INVESTING. THE PROSPECTUS CONTAINS THIS AND OTHER INFORMATION. PLEASE CAREFULLY READ THE PROSPECTUS BEFORE INVESTING. TO ENSURE THE HIGHEST QUALITY OF SERVICE, WE MAY MONITOR, RECORD AND ACCESS TELEPHONE CALLS TO OR FROM OUR SERVICE DEPARTMENTS. THESE CALLS CAN BE IDENTIFIED BY THE PRESENCE OF A REGULAR BEEPING TONE. VALUE Franklin All Cap Value Fund Franklin Balance Sheet Investment Fund Franklin Large Cap Value Fund Franklin MicroCap Value Fund(1) Franklin MidCap Value Fund Franklin Small Cap Value Fund Mutual Beacon Fund Mutual Quest Fund(2) Mutual Recovery Fund(3) Mutual Shares Fund BLEND Franklin Focused Core Equity Fund Franklin Large Cap Equity Fund Franklin Rising Dividends Fund GROWTH Franklin DynaTech Fund Franklin Flex Cap Growth Fund Franklin Growth Fund Franklin Growth Opportunities Fund Franklin Small Cap Growth Fund Franklin Small-Mid Cap Growth Fund SECTOR Franklin Biotechnology Discovery Fund Franklin Global Real Estate Fund Franklin Gold & Precious Metals Fund Franklin Natural Resources Fund Franklin Real Estate Securities Fund Franklin Utilities Fund Mutual Financial Services Fund GLOBAL Mutual Global Discovery Fund(4) Templeton Global Long-Short Fund Templeton Global Opportunities Trust Templeton Global Smaller Companies Fund Templeton Growth Fund Templeton World Fund INTERNATIONAL Franklin India Growth Fund Franklin International Growth Fund Franklin International Small Cap Growth Fund Mutual European Fund Mutual International Fund Templeton BRIC Fund Templeton China World Fund Templeton Developing Markets Trust Templeton Emerging Markets Small Cap Fund Templeton Foreign Fund Templeton Foreign Smaller Companies Fund Templeton Frontier Markets Fund HYBRID Franklin Balanced Fund Franklin Convertible Securities Fund Franklin Equity Income Fund Franklin Income Fund Templeton Income Fund ASSET ALLOCATION Franklin Templeton Corefolio(R) Allocation Fund Franklin Templeton Founding Funds Allocation Fund Franklin Templeton Perspectives Allocation Fund Franklin Templeton Conservative Target Fund Franklin Templeton Growth Target Fund Franklin Templeton Moderate Target Fund Franklin Templeton 2015 Retirement Target Fund Franklin Templeton 2025 Retirement Target Fund Franklin Templeton 2035 Retirement Target Fund Franklin Templeton 2045 Retirement Target Fund FIXED INCOME Franklin Adjustable U.S. Government Securities Fund (5) Franklin Floating Rate Daily Access Fund Franklin High Income Fund Franklin Limited Maturity U.S. Government Securities Fund(5) Franklin Low Duration Total Return Fund Franklin Real Return Fund Franklin Strategic Income Fund Franklin Strategic Mortgage Portfolio Franklin Templeton Hard Currency Fund Franklin Total Return Fund Franklin U.S. Government Securities Fund(5) Templeton Global Bond Fund Templeton Global Total Return Fund Templeton International Bond Fund TAX-FREE INCOME(6) NATIONAL Double Tax-Free Income Fund Federal Tax-Free Income Fund High Yield Tax-Free Income Fund Insured Tax-Free Income Fund(7) LIMITED-/INTERMEDIATE-TERM California Intermediate-Term Tax-Free Income Fund Federal Intermediate-Term Tax-Free Income Fund Federal Limited-Term Tax-Free Income Fund New York Intermediate-Term Tax-Free Income Fund STATE-SPECIFIC Alabama Arizona California(8) Colorado Connecticut Florida Georgia Kentucky Louisiana Maryland Massachusetts(9) Michigan(9) Minnesota(9) Missouri New Jersey New York8 North Carolina Ohio(9) Oregon Pennsylvania Tennessee Virginia INSURANCE FUNDS Franklin Templeton Variable Insurance Products Trust (10) (1.) The fund is closed to new investors. Existing shareholders and select retirement plans can continue adding to their accounts. (2.) Effective 5/1/09, Mutual Qualified Fund changed its name to Mutual Quest Fund. The fund's investment goal and strategy remained unchanged. (3.) The fund is a continuously offered, closed-end fund. Shares may be purchased daily; there is no daily redemption. However, each quarter, pending board approval, the fund will authorize the repurchase of 5%-25% of the outstanding number of shares. Investors may tender all or a portion of their shares during the tender period. (4.) Effective 5/1/09, Mutual Discovery Fund changed its name to Mutual Global Discovery Fund. The fund's investment goal and strategy remained unchanged. (5.) An investment in the fund is neither insured nor guaranteed by the U.S. government or by any other entity or institution. (6.) For investors subject to the alternative minimum tax, a small portion of fund dividends may be taxable. Distributions of capital gains are generally taxable. (7.) The fund invests primarily in insured municipal securities. (8.) These funds are available in three or more variations, including long-term portfolios, intermediate-term portfolios, portfolios of insured securities, a high-yield portfolio (CA only) and a money market portfolio (CA only). (9.) The Board of Trustees approved the elimination of the non-fundamental policy requiring the fund to invest at least 80% of net assets in insured municipal securities and the removal of the word "Insured" from the fund name. The changes became effective 2/15/09. (10.) The funds of the Franklin Templeton Variable Insurance Products Trust are generally available only through insurance company variable contracts. 01/10 Not part of the annual report (FRANKLIN TEMPLETON INVESTMENTS(R) LOGO) One Franklin Parkway San Mateo, CA 94403-1906 SIGN UP FOR ELECTRONIC DELIVERY on franklintempleton.com ANNUAL REPORT AND SHAREHOLDER LETTER FRANKLIN TEMPLETON FUND ALLOCATOR SERIES INVESTMENT MANAGER Franklin Advisers, Inc. DISTRIBUTOR Franklin Templeton Distributors, Inc. (800) DIAL BEN(R) franklintempleton.com SHAREHOLDER SERVICES (800) 632-2301 Authorized for distribution only when accompanied or preceded by a prospectus. Investors should carefully consider a fund's investment goals, risks, charges and expenses before investing. The prospectus contains this and other information; please read it carefully before investing. To ensure the highest quality of service, telephone calls to or from our service departments may be monitored, recorded and accessed. These calls can be identified by the presence of a regular beeping tone. RTF A2009 02/10 ITEM 2. CODE OF ETHICS. (a) The Registrant has adopted a code of ethics that applies to its principal executive officers and principal financial and accounting officer. (c) N/A (d) N/A (f) Pursuant to Item 12(a)(1), the Registrant is attaching as an exhibit a copy of its code of ethics that applies to its principal executive officers and principal financial and accounting officer. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. (a)(1) The Registrant has an audit committee financial expert serving on its audit committee. (2) The audit committee financial expert is John B. Wilson, and he is "independent" as defined under the relevant Securities and Exchange Commission Rules and Releases. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. (a) Audit Fees The aggregate fees paid to the principal accountant for professional services rendered by the principal accountant for the audit of the registrant's annual financial statements or for services that are normally provided by the principal accountant in connection with statutory and regulatory filings or engagements were $256,047 for the fiscal year ended December 31, 2009 and $245,040 for the fiscal year ended December 31, 2008. (b) Audit-Related Fees There were no fees paid to the principal accountant for assurance and related services rendered by the principal accountant to the registrant that are reasonably related to the performance of the audit of the registrant's financial statements and are not reported under paragraph (a) of Item 4. There were no fees paid to the principal accountant for assurance and related services rendered by the principal accountant to the registrant's investment adviser and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the registrant that are reasonably related to the performance of the audit of their financial statements. (c) Tax Fees There were no fees paid to the principal accountant for professional services rendered by the principal accountant to the registrant for tax compliance, tax advice and tax planning. The aggregate fees paid to the principal accountant for professional services rendered by the principal accountant to the registrant's investment adviser and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the registrant for tax compliance, tax advice and tax planning were $2,762 for the fiscal year ended December 31, 2009 and $4,000 for the fiscal year ended December 31, 2008. The services for which these fees were paid included tax compliance and advice. (d) All Other Fees The aggregate fees paid to the principal accountant for products and services rendered by the principal accountant to the registrant not reported in paragraphs (a)-(c) of Item 4 were $0 for the fiscal year ended December 31, 2009 and $13,083 for the fiscal year ended December 31, 2008. The services for which these fees were paid include review of materials provided to the fund Board in connection with the investment management contract renewal process. The aggregate fees paid to the principal accountant for products and services rendered by the principal accountant to the registrant's investment adviser and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the registrant other than services reported in paragraphs (a)-(c) of Item 4 were $0 for the fiscal year ended December 31, 2009 and $270,994 for the fiscal year ended December 31, 2008. The services for which these fees were paid include review of materials provided to the fund Board in connection with the investment management contract renewal process. (e) (1) The registrant's audit committee is directly responsible for approving the services to be provided by the auditors, including: (i) pre-approval of all audit and audit related services; (ii) pre-approval of all non-audit related services to be provided to the Fund by the auditors; (iii) pre-approval of all non-audit related services to be provided to the registrant by the auditors to the registrant's investment adviser or to any entity that controls, is controlled by or is under common control with the registrant's investment adviser and that provides ongoing services to the registrant where the non-audit services relate directly to the operations or financial reporting of the registrant; and (iv) establishment by the audit committee, if deemed necessary or appropriate, as an alternative to committee pre-approval of services to be provided by the auditors, as required by paragraphs (ii) and (iii) above, of policies and procedures to permit such services to be pre-approved by other means, such as through establishment of guidelines or by action of a designated member or members of the committee; provided the policies and procedures are detailed as to the particular service and the committee is informed of each service and such policies and procedures do not include delegation of audit committee responsibilities, as contemplated under the Securities Exchange Act of 1934, to management; subject, in the case of (ii) through (iv), to any waivers, exceptions or exemptions that may be available under applicable law or rules. (e) (2) None of the services provided to the registrant described in paragraphs (b)-(d) of Item 4 were approved by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of regulation S-X. (f) No disclosures are required by this Item 4(f). (g) The aggregate non-audit fees paid to the principal accountant for services rendered by the principal accountant to the registrant and the registrant's investment adviser and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the registrant were $2,762 for the fiscal year ended December 31, 2009 and $288,077 for the fiscal year ended December 31, 2008. (h) The registrant's audit committee of the board has considered whether the provision of non-audit services that were rendered to the registrant's investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant's independence. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. N/A ITEM 6. SCHEDULE OF INVESTMENTS. N/A ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. N/A ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. N/A ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. N/A ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. There have been no changes to the procedures by which shareholders may recommend nominees to the Registrant's Board of Trustees that would require disclosure herein. ITEM 11. CONTROLS AND PROCEDURES. (a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. The Registrant maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Registrant's filings under the Securities Exchange Act of 1934 and the Investment Company Act of 1940 is recorded, processed, summarized and reported within the periods specified in the rules and forms of the Securities and Exchange Commission. Such information is accumulated and communicated to the Registrant's management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. The Registrant's management, including the principal executive officer and the principal financial officer, recognizes that any set of controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Within 90 days prior to the filing date of this Shareholder Report on Form N-CSR, the Registrant had carried out an evaluation, under the supervision and with the participation of the Registrant's management, including the Registrant's principal executive officer and the Registrant's principal financial officer, of the effectiveness of the design and operation of the Registrant's disclosure controls and procedures. Based on such evaluation, the Registrant's principal executive officer and principal financial officer concluded that the Registrant's disclosure controls and procedures are effective. (b) CHANGES IN INTERNAL CONTROLS. There have been no significant changes in the Registrant's internal controls or in other factors that could significantly affect the internal controls subsequent to the date of their evaluation in connection with the preparation of this Shareholder Report on Form N-CSR. ITEM 12. EXHIBITS. (a)(1) Code of Ethics (a)(2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Laura F. Fergerson, Chief Executive Officer - Finance and Administration, and Gaston Gardey, Chief Financial Officer and Chief Accounting Officer (b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Laura F. Fergerson, Chief Executive Officer - Finance and Administration, and Gaston Gardey, Chief Financial Officer and Chief Accounting Officer SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FRANKLIN TEMPLETON FUND ALLOCATOR SERIES By /s/LAURA F. FERGERSON ---------------------- Laura F. Fergerson Chief Executive Officer - Finance and Administration Date February 25, 2010 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By /s/LAURA F. FERGERSON --------------------- Laura F. Fergerson Chief Executive Officer - Finance and Administration Date February 25, 2010 By /s/GASTON GARDEY ---------------- Gaston Gardey Chief Financial Officer and Chief Accounting Officer Date February 25, 2010 EX-99.CODE ETH 2 ncsr_code1208.txt REVISED CODE OF ETHICS Exhibit 12(a)(1) CODE OF ETHICS FOR PRINCIPAL EXECUTIVES & SENIOR FINANCIAL OFFICERS - ------------------------------------------------------------------------------ PROCEDURES Revised December 22, 2008 - ------------------------------------------------------------------------------- FRANKLIN TEMPLETON FUNDS CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND SENIOR FINANCIAL OFFICERS I. Covered Officers and Purpose of the Code This code of ethics (the "Code") applies to the Principal Executive Officers, Principal Financial Officer and Principal Accounting Officer (the "Covered Officers," each of whom is set forth in Exhibit A) of each investment company advised by a Franklin Resources subsidiary and that is registered with the United States Securities & Exchange Commission ("SEC") (collectively, "FT Funds") for the purpose of promoting: o Honest and ethical conduct, including the ethical resolution of actual or apparent conflicts of interest between personal and professional relationships; o Full, fair, accurate, timely and understandable disclosure in reports and documents that a registrant files with, or submits to, the SEC and in other public communications made by or on behalf of the FT Funds; o Compliance with applicable laws and governmental rules and regulations; o The prompt internal reporting of violations of the Code to an appropriate person or persons identified in the Code; and o Accountability for adherence to the Code. Each Covered Officer will be expected to adhere to a high standard of business ethics and must be sensitive to situations that may give rise to actual as well as apparent conflicts of interest. II. Other Policies and Procedures This Code shall be the sole code of ethics adopted by the Funds for purposes of Section 406 of the Sarbanes-Oxley Act and the rules and forms applicable to registered investment companies thereunder. Franklin Resources, Inc. has separately adopted the CODE OF ETHICS AND BUSINESS CONDUCT ("Business Conduct"), which is applicable to all officers, directors and employees of Franklin Resources, Inc., including Covered Officers. It summarizes the values, principles and business practices that guide the employee's business conduct and also provides a set of basic principles to guide officers, directors and employees regarding the minimum ethical requirements expected of them. It supplements the values, principles and business conduct identified in the Code and other existing employee policies. Additionally, the Franklin Templeton Funds have separately adopted the CODE OF ETHICS AND POLICY STATEMENT ON INSIDER TRADING governing personal securities trading and other related matters. The Code for Insider Trading provides for separate requirements that apply to the Covered Officers and others, and therefore is not part of this Code. Insofar as other policies or procedures of Franklin Resources, Inc., the Funds, the Funds' adviser, principal underwriter, or other service providers govern or purport to govern the behavior or activities of the Covered Officers who are subject to this Code, they are superceded by this Code to the extent that they overlap or conflict with the provisions of this Code. Please review these other documents or consult with the Legal Department if have questions regarding the applicability of these policies to you. III. Covered Officers Should Handle Ethically Actual and Apparent Conflicts of Interest OVERVIEW. A "conflict of interest" occurs when a Covered Officer's private interest interferes with the interests of, or his or her service to, the FT Funds. For example, a conflict of interest would arise if a Covered Officer, or a member of his family, receives improper personal benefits as a result of apposition with the FT Funds. Certain conflicts of interest arise out of the relationships between Covered Officers and the FT Funds and already are subject to conflict of interest provisions in the Investment Company Act of 1940 ("Investment Company Act") and the Investment Advisers Act of 1940 ("Investment Advisers Act"). For example, Covered Officers may not individually engage in certain transactions (such as the purchase or sale of securities or other property) with the FT Funds because of their status as "affiliated persons" of the FT Funds. The FT Funds' and the investment advisers' compliance programs and procedures are designed to prevent, or identify and correct, violations of these provisions. This Code does not, and is not intended to, repeat or replace these programs and procedures, and such conflicts fall outside of the parameters of this Code. Although typically not presenting an opportunity for improper personal benefit, conflicts arise from, or as a result of, the contractual relationship between the FT Funds, the investment advisers and the fund administrator of which the Covered Officers are also officers or employees. As a result, this Code recognizes that the Covered Officers will, in the normal course of their duties (whether formally for the FT Funds, for the adviser, the administrator, or for all three), be involved in establishing policies and implementing decisions that will have different effects on the adviser, administrator and the FT Funds. The participation of the Covered Officers in such activities is inherent in the contractual relationship between the FT Funds, the adviser, and the administrator and is consistent with the performance by the Covered Officers of their duties as officers of the FT Funds. Thus, if performed in conformity with the provisions of the Investment Company Act and the Investment Advisers Act, such activities will be deemed to have been handled ethically. In addition, it is recognized by the FT Funds' Boards of Directors ("Boards") that the Covered Officers may also be officers or employees of one or more other investment companies covered by this or other codes. Other conflicts of interest are covered by the Code, even if such conflicts of interest are not subject to provisions in the Investment Company Act and the Investment Advisers Act. The following list provides examples of conflicts of interest under the Code, but Covered Officers should keep in mind that these examples are not exhaustive. The overarching principle is that the personal interest of a Covered Officer should not be placed improperly before the interest of the FT Funds. Each Covered Officer must: o Not use his or her personal influence or personal relationships improperly to influence investment decisions orfinancial reporting by the FT Funds whereby the Covered Officer would benefit personally to the detriment of the FT Funds; o Not cause the FT Funds to take action, or fail to take action, for the individual personal benefit of the Covered Officer rather than the benefit the FT Funds; o Not retaliate against any other Covered Officer or any employee of the FT Funds or their affiliated persons for reports of potential violations that are made in good faith; o Report at least annually the following affiliations or other relationships:/ 1 o all directorships for public companies and all companies that are required to file reports with the SEC; o any direct or indirect business relationship with any independent directors of the FT Funds; o any direct or indirect business relationship with any independent public accounting firm (which are not related to the routine issues related to the firm's service as the Covered Persons accountant); and o any direct or indirect interest in any transaction with any FT Fund that will benefit the officer (not including benefits derived from the advisory, sub-advisory, distribution or service agreements with affiliates of Franklin Resources). These reports will be reviewed by the Legal Department for compliance with the Code. There are some conflict of interest situations that should always be approved in writing by Franklin Resources General Counsel or Deputy General Counsel, if material. Examples of these include/2: o Service as a director on the board of any public or private Company; o The receipt of any gifts in excess of $100 from any person, from any corporation or association o The receipt of any entertainment from any Company with which the FT Funds has current or prospective business dealings unless such entertainment is business related, reasonable in cost, appropriate as to time and place, and not so frequent as to raise any question of impropriety. Notwithstanding the foregoing, the Covered Officers must obtain prior approval from the Franklin Resources General Counsel for any entertainment with a value in excess of $1000. o Any ownership interest in, or any consulting or employment relationship with, any of the FT Fund's service providers, other than an investment adviser, principal underwriter, administrator or any affiliated person thereof; o A direct or indirect financial interest in commissions, transaction charges or spreads paid by the FT Funds for effecting portfolio transactions or for selling or redeeming shares other than an interest arising from the Covered Officer's employment, such as compensation or equity ownership. Franklin Resources General Counsel or Deputy General Counsel will provide a report to the FT Funds Audit Committee of any approvals granted at the next regularly scheduled meeting. IV. Disclosure and Compliance o Each Covered Officer should familiarize himself with the disclosure requirements generally applicable to the FT Funds; o Each Covered Officer should not knowingly misrepresent, or cause others to misrepresent, facts about the FT Funds to others, whether within or outside the FT Funds, including to the FT Funds' directors and auditors, and to governmental regulators and self-regulatory organizations; o Each Covered Officer should, to the extent appropriate within his or her area of responsibility, consult with other officers and employees of the FT Funds, the FT Fund's adviser and the administrator with the goal of promoting full, fair, accurate, timely and understandable disclosure in the reports and documents the FT Funds file with, or submit to, the SEC and in other public communications made by the FT Funds; and o It is the responsibility of each Covered Officer to promote compliance with the standards and restrictions imposed by applicable laws, rules and regulations. V. Reporting and Accountability Each Covered Officer must: o Upon becoming a covered officer affirm in writing to the Board that he or she has received, read, and understands the Code (see Exhibit B); o Annually thereafter affirm to the Board that he has complied with the requirements of the Code; and o Notify Franklin Resources' General Counsel or Deputy General Counsel promptly if he or she knows of any violation of this Code. Failure to do so is itself is a violation of this Code. Franklin Resources' General Counsel and Deputy General Counsel are responsible for applying this Code to specific situations in which questions are presented under it and have the authority to interpret this Code in any particular situation./3 However, the Independent Directors of the respective FT Funds will consider any approvals or waivers/4 sought by any Chief Executive Officers of the Funds. The FT Funds will follow these procedures in investigating and enforcing this Code: o Franklin Resources General Counsel or Deputy General Counsel will take all appropriate action to investigate any potential violations reported to the Legal Department; o If, after such investigation, the General Counsel or Deputy General Counsel believes that no violation has occurred, The General Counsel is not required to take any further action; o Any matter that the General Counsel or Deputy General Counsel believes is a violation will be reported to the Independent Directors of the appropriate FT Fund; o If the Independent Directors concur that a violation has occurred, it will inform and make a recommendation to the Board of the appropriate FT Fund or Funds, which will consider appropriate action, which may include review of, and appropriate modifications to, applicable policies and procedures; notification to appropriate personnel of the investment adviser or its board; or a recommendation to dismiss the Covered Officer; o The Independent Directors will be responsible for granting waivers, as appropriate; and o Any changes to or waivers of this Code will, to the extent required, are disclosed as provided by SEC rules./5 VI. Other Policies and Procedures This Code shall be the sole code of ethics adopted by the FT Funds for purposes of Section 406 of the Sarbanes-Oxley Act and the rules and forms applicable to registered investment companies thereunder. Insofar as other policies or procedures of the FT Funds, the FT Funds' advisers, principal underwriter, or other service providers govern or purport to govern the behavior or activities of the Covered Officers who are subject to this Code, they are superseded by this Code to the extent that they overlap or conflict with the provisions of this Code. The FT Code of Ethics and Policy Statement On Insider Trading, adopted by the FT Funds, FT investment advisers and FT Fund's principal underwriter pursuant to Rule 17j-1 under the Investment Company Act, the Code of Ethics and Business Conduct and more detailed policies and procedures set forth in FT's Employee Handbook are separate requirements applying to the Covered Officers and others, and are not part of this Code. VII. Amendments Any amendments to this Code, other than amendments to Exhibit A, must be approved or ratified by a majority vote of the FT Funds' Board including a majority of independent directors. VIII. Confidentiality All reports and records prepared or maintained pursuant to this Code will be considered confidential and shall be maintained and protected accordingly. Except as otherwise required by law or this Code, such matters shall not be disclosed to anyone other than the FT Funds' Board and their counsel. IX. Internal Use The Code is intended solely for the internal use by the FT Funds and does not constitute an admission, by or on behalf of any FT Funds, as to any fact, circumstance, or legal conclusion. X. Disclosure on Form N-CSR Item 2 of Form N-CSR requires a registered management investment company to disclose annually whether, as of the end of the period covered by the report, it has adopted a code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these officers are employed by the registrant or a third party. If the registrant has not adopted such a code of ethics, it must explain why it has not done so. The registrant must also: (1) file with the SEC a copy of the code as an exhibit to its annual report; (2) post the text of the code on its Internet website and disclose, in its most recent report on Form N-CSR, its Internet address and the fact that it has posted the code on its Internet website; or (3) undertake in its most recent report on Form N-CSR to provide to any person without charge, upon request, a copy of the code and explain the manner in which such request may be made. Disclosure is also required of amendments to, or waivers (including implicit waivers) from, a provision of the code in the registrant's annual report on Form N-CSR or on its website. If the registrant intends to satisfy the requirement to disclose amendments and waivers by posting such information on its website, it will be required to disclose its Internet address and this intention. The Legal Department shall be responsible for ensuring that: o a copy of the Code is filed with the SEC as an exhibit to each Fund's annual report; and o any amendments to, or waivers (including implicit waivers) from, a provision of the Code is disclosed in the registrant's annual report on Form N-CSR. In the event that the foregoing disclosure is omitted or is determined to be incorrect, the Legal Department shall promptly file such information with the SEC as an amendment to Form N-CSR. In such an event, the Fund Chief Compliance Officer shall review the Code and propose such changes to the Code as are necessary or appropriate to prevent reoccurrences. EXHIBIT A Persons Covered by the Franklin Templeton Funds Code of Ethics December 2008 FRANKLIN GROUP OF FUNDS Edward B. Jamieson President and Chief Executive Officer - Investment Management Charles B. Johnson President and Chief Executive Officer - Investment Management Rupert H. Johnson, Jr. President and Chief Executive Officer - Investment Management William J. Lippman President and Chief Executive Officer - Investment Management Christopher Molumphy President and Chief Executive Officer - Investment Management Jennifer J. Bolt Chief Executive Officer - Finance and Administration Laura Fergerson Chief Financial Officer and Chief Accounting Officer FRANKLIN MUTUAL SERIES FUNDS Peter Langerman Chief Executive Officer-Investment Management Jennifer J. Bolt Chief Executive Officer - Finance and Administration Laura Fergerson Chief Financial Officer and Chief Accounting Officer TEMPLETON GROUP OF FUNDS Mark Mobius President and Chief Executive Officer - Investment Management Christopher J. Molumphy President and Chief Executive Officer - Investment Management Gary P. Motyl President and Chief Executive Officer - Investment Management Donald F. Reed President and Chief Executive Officer - Investment Management Jennifer J. Bolt Chief Executive Officer - Finance and Administration Laura Fergerson Chief Financial Officer and Chief Accounting Officer EXHIBIT B ACKNOWLEDGMENT FORM DECEMBER FRANKLIN TEMPLETON FUNDS CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND SENIOR FINANCIAL OFFICERS INSTRUCTIONS: 1. Complete all sections of this form. 2. Print the completed form, sign, and date. 3. Submit completed form to FT's General Counsel c/o Code of Ethics Administration within 10 days of becoming a Covered Officer and by January 30th of each subsequent year. INTER-OFFICE MAIL: Code of Ethics Administration, Global Compliance SM-920/2 TELEPHONE: (650) 312-5698 Fax: (650) 312-5646 E-MAIL: Preclear-Code of Ethics (internal address); lpreclear@frk.com (external address) - ------------------------------------------------------------------------------ COVERED OFFICER'S NAME: - ------------------------------------------------------------------------------ TITLE: - ------------------------------------------------------------------------------ DEPARTMENT: - ------------------------------------------------------------------------------ LOCATION: - ------------------------------------------------------------------------------ CERTIFICATION FOR YEAR ENDING: - ------------------------------------------------------------------------------ TO: Franklin Resources General Counsel, Legal Department I hereby acknowledge receipt of a copy of Franklin Templeton Fund's code of ethics for Principal Executive Officers and Senior Financial Officers (the "Code") that I have read and understand. I will comply fully with all provisions of the Code to the extent they apply to me during the period of my employment. I further understand and acknowledge that any violation of the Code may subject me to disciplinary action, including termination of employment. ---------------------------- ---------------------- Signature Date signed - ----------------------------- 1. Reporting of these affiliations or other relationships shall be made by completing the annual Directors and Officers Questionnaire and returning the questionnaire to Franklin Resources Inc, General Counsel or Deputy General Counsel. 2. Any activity or relationship that would present a conflict for a Covered Officer may also present a conflict for the Covered Officer if a member of the Covered Officer's immediate family engages in such an activity or has such a relationship. The Cover Person should also obtain written approval by FT's General Counsel in such situations. 3. Franklin Resources General Counsel and Deputy General Counsel are authorized to consult, as appropriate, with members of the Audit Committee, counsel to the FT Funds and counsel to the Independent Directors, and are encouraged to do so. 4. Item 2 of Form N-CSR defines "waiver" as "the approval by the registrant of a material departure from a provision of the code of ethics" and "implicit waiver," which must also be disclosed, as "the registrant's failure to take action within a reasonable period of time regarding a material departure from a provision of the code of ethics that has been made known to an executive officer" of the registrant. See Part X. 5. See Part X. EX-99.CERT 3 ftfas302cert.txt 302 CERTIFICATION Exhibit 12(a)(2) I, Laura F. Fergerson, certify that: 1. I have reviewed this report on Form N-CSR of FRANKLIN TEMPLETON FUND ALLOCATOR SERIES; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. 2/25/2010 S\LAURA F. FERGERSON Laura F. Fergerson Chief Executive Officer - Finance and Administration Exhibit 12(a)(2) I, Gaston Gardey, certify that: 1. I have reviewed this report on Form N-CSR of FRANKLIN TEMPLETON FUND ALLOCATOR SERIES; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. 2/25/2010 S\GASTON GARDEY Gaston Gardey Chief Financial Officer and Chief Accounting Officer EX-99.906CERT 4 ftfas906cert.txt 906 CERTIFICATION Exhibit 12(b) CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Laura F. Fergerson, Chief Executive Officer of the FRANKLIN TEMPLETON FUND ALLOCATOR SERIES (the "Registrant"), certify, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge: 1. The periodic report on Form N-CSR of the Registrant for the period ended 12/31/2009 (the "Form N-CSR") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Dated: 2/25/2010 S\ LAURA F. FERGERSON Laura F. Fergerson Chief Executive Officer - Finance and Administration Exhibit 12(b) CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Gaston Gardey, Chief Financial Officer of the FRANKLIN TEMPLETON FUND ALLOCATOR SERIES (the "Registrant"), certify, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge: 1. The periodic report on Form N-CSR of the Registrant for the period ended 12/31/2009 (the "Form N-CSR") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Dated: 2/25/2010 S\ GASTON GARDEY Gaston Gardey Chief Financial Officer and Chief Accounting Officer -----END PRIVACY-ENHANCED MESSAGE-----